The British Chambers of Commerce (BCC) forecasts the economy will not return to its pre-pandemic size until the final quarter of 2024.
The rate of UK inflation is expected to continue slowing throughout 2023, hitting 5 per cent by the fourth quarter.
BCC is now forecasting that the economy will shrink in 2023 but by much less than previously expected. However, the recovery will remain weak with predicted growth for 2024 has been revised down.
In the immediate term, the BCC is now expecting the first quarter of 2023 to see GDP fall, before three quarters of flat or weak growth – leading to an overall contraction of 0.3 per cent for the year. This is a slightly more optimistic outlook than either the Office for Budget Responsibility or Bank of England’s predictions. The BCC also expects the economy to grow in 2024, at 0.6 per cent.
The expectation for 2023 has been revised upwards from -1.3 per cent in the BCC’s last forecast, due to a more resilient economic performance at the end of 2022. Household spending held up well, despite a fall in real disposable income due to rising energy costs, inflation outstripping wages, frozen income tax allowances and higher mortgage payments.
Despite a big drop in business confidence in Q3 2022, this now appears to have stabilised albeit at a lower level. Business investment has now returned to pre-pandemic levels, although it was not performing well then.
Businesses and consumers will continue to face high costs due to inflation. But the current downward trajectory, following a peak of 11.1 per cent in October 2022, is likely to continue throughout the year, ending at 5 per cent in Q4. The CPI rate is expected to continue to slow and drop below the Bank of England’s target to 1.5 per cent in Q4 2024. It is then expected to rise again in 2025, returning to the 2 per cent goal. This means prices will continue to rise, at slower rates, and that they will stabilise at a much higher level than two years ago. Average earnings growth will lag behind inflation until 2024.
The overall picture for 2024 shows a return to growth but only at a level which will see the UK economy finally get back to its pre-pandemic size (Q4 2019) in the final quarter.
Alex Veitch, Director of Policy at the British Chambers of Commerce, said:
“Although the economy should now avoid a technical recession, the stark reality is that businesses face a very difficult year ahead. With the Government having little fiscal headroom for the Spring Budget, it is vital it spends the money it has got wisely.
“We know we have a tough year ahead and there is currently little incentive for firms to risk ploughing their dwindling cash reserves or fresh loans into new projects.
“But unless we unlock investment into growth areas of our economy, then the UK will get left behind by our competitors.
“The Chancellor must show more faith in the ability and talent of our businesses. If he backs them, by acting on childcare to ease staff shortages and helping them manage their energy costs, then the UK economy could still prosper.”