The UK economy won’t return to pre-pandemic levels until next year’s final quarter, predicts the British Chambers of Commerce, which expects inflation to continue slowing this year, hitting 5%by the fourth quarter.
The organisation 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.
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.”
