UK expected to avoid a recession, despite sluggish GDP growth

This went up 0.2% when compared to the 0.4% growth predicted in its summer forecast back in July. However, GDP growth expectations for 2024 have been downgraded slightly from 0.8% to 0.7% – as the impact of the recent interest rate rising cycle.  

Despite this, the likely end to rate increases, combined with falling inflation and a return to real pay growth, should keep the economy from falling into recession. According to EY ITEM Club, inflation is now expected to fall slightly faster than previous predictions – and could reach 4.5% by the end of 2023, before hitting the Bank of England’s two percent target during the second half of 2024.  

As for 2025, the economy is still forecast to grow by 1.7% as lower inflation lifts real incomes and interest rates are cut.  

EY UK chair Hywel Ball said: “The cost of debt is set to be the biggest headwind for the UK economy over the next 12 months, with consequences for both businesses and consumers.  

“But while high interest rates will weigh heavily on growth, there are still signs of resilience from which we can take positives. Inflation is heading in the right direction, average wages are rising in real terms once more, and household and corporate balance sheets remain unusually healthy. 

“While the UK may have lagged some of its global peers in its economic recovery from the pandemic – despite upwards revisions to GDP data – this suggests there is room for catch-up growth. Most encouragingly, the recent strength of business investment, which had been disappointingly subdued for some time, perhaps signals that the economy’s growth potential may be reviving.

“There’s no getting away from the fact that growth will be limited in the short-term, but there are reasons for optimism for next year and beyond.”