Recession to last until 2024, Goldman Sachs warns

The findings from the investment bank also suggest it believes that, by the year’s end, the economy will have shrunk for two consecutive quarters - the formal definition of a recession. Additionally, it’s flipped its previous estimates that the economy will grow by 1.1% next year and is instead forecasting it will contract by 0.6% through the whole of 2023. 

Economists at the business, led by its chief European economist Sven Jari Stehn, said: "Concerns around cost of living pressures in the UK have continued to intensify on the back of worsening energy crisis. Real consumption is likely to decline significantly.” 

It follows forecasts from Citigroup which suggest inflation could hit 18.6% in January next year, as the impacts of rising energy costs and the cost-of-living crisis dampen consumer spending play out. 

Research from the Confederation of British Industry (CBI), meanwhile, found that the sentiment about the general business situation among those in business and professional services saw its sharpest decline since May 2020, dropping by 39%. 

Business volumes were relatively flat following growth in the previous quarter of 28%, but are set to fall next quarter. Cost pressures also continue to build going up from 64% to 69%, witnessing record rates of growth - with growth set to remain strong in the next quarter at 65%. 

Additionally, profitability continued to drop - going down by 11% in the quarter to August. This is a similar pace to the decline from the previous quarter, with profits expected to decline more over the next quarter - dropping by 25%. 

As for those in consumer services, optimism about the general business situation deteriorated at the fastest rate since May 2020, dropping by 64%. Alongside this, business volumes dropped for the first time in over a year - going down by 37% - however, the pace of decline is set to ease slightly next quarter, with only a decline of 29%. 

Costs also continued to grow in the three months to August - up 88%. This is the quickest rate on record, with cost growth expected to ease slightly but remain well above average at 77% over the next quarter. 

Additionally, average selling prices continued to grow, with the 52% increase being the quickest growth rate since May 2006. This pace is tipped to edge higher over the next three months, at 56%. 

Coinciding with this, profitability continued to fall in the three months to August - going down by 64%, which is the sharpest rate of decline in two years. Profits are expected to fall further next month, with the weakest expectations on record, dropping by 84%. 

Responding to these findings, the CBI’s head of economic surveys Charlotte Dendy shared, come 5 September, business will be looking to the next prime minister to “move swiftly and effectively” to help shore up confidence. 

She explained: “There are slim pickings for those looking for positive signals in the services sector over the last quarter. Just as rising inflation is hurting households and every business sector, the services industry is no different.

“Average selling prices grew at a record pace and profitability in the sector fell once more, with uncertainty over demand the main reason why investment intentions deteriorated. Nevertheless, business & professional services fared somewhat better than consumer services, with employment continuing to grow, as well as investment in training and IT.

“Come 5 September, business will be looking to the next prime minister to move swiftly and effectively to help shore up confidence. That means supporting vulnerable households and businesses with high energy prices and setting out plans to get the UK economy back on a growth trajectory.”