UK will dodge recession as inflation falls

Britain will swerve a recession this year as eye-watering inflation cools off, in a boost for Jeremy Hunt.

Last week, the Chancellor said the economic outlook seemed ‘brighter than expected’, in a retort to the IMF’s gloomy predictions.

Now, in a vote of confidence for Hunt, economists at EY have supported the view that a recession is not imminent. Britain is expected to record 0.2 per cent growth this year, a major upgrade from the -0.7 per cent contraction predicted by the economic forecasters in January.

The economy will flatline in the first half of 2023 before improving from the summer onwards when dropping wholesale energy prices will subdue inflation.

‘The UK economy seems to be turning a corner, albeit very slowly,’ said Hywel Ball, EY’s UK chairman. It comes after better-than-expected GDP in the last quarter of 2022 and signs that inflation will ease as the year goes on.

Hunt pointed to growth for the three months to February, although gross domestic product (GDP) flatlined in February after 0.4 per cent growth the previous month, due to public sector strikes hammering the construction sector.

The Chancellor also said the UK would avoid a recession, which is defined as two successive quarters of shrinking GDP. He told IMF managing director Kristalina Georgieva that he was ‘very focused on proving you wrong’, at the body’s meeting in Washington last week.

Although the IMF upped its forecast for UK GDP for 2023 and 2024, the financial agency said the UK would have the worst growth of all the big industrialised economies. But in a sign of relief for households, EY’s ITEM Club said inflation would come under 3 per cent by the end of 2023, an improvement on January’s forecast of just under 4 per cent.

Analysts have forecast inflation will dip out of double digits for the first time since last summer when March’s data is published on Wednesday.

Headline inflation unexpectedly jumped in February to 10.4 per cent from 10.1 per cent in January, after record grocery price hikes due to salad shortages.

EY says the economy is not yet out of the woods, with Britons still feeling the pinch. Even so, news of the economy outperforming expectations ‘could help stir a revival in business and consumer confidence,’ Ball said.