United Kingdom – 2023-2024 Scenario: from stagnation to recession
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- 2022 political crisis and fiscal policy shifts
- Recent economic trends
- Outline of our scenario
Our scenario starting in Q3-2022 includes a four-quarter recession due to the ongoing purchasing power crisis, past and future tightening, monetary and financial conditions, and the government’s fiscal turnaround. However, the cumulative decline in GDP in our scenario is relatively contained, at -1.3% between Q3-2022 and Q2-2023, driven by a 2.7% decrease in private consumption, lower than what the drop in real disposable income alone would suggest. Our annual average growth forecast for 2023 has been revised downwards (to -0.8% versus -0.2% at the beginning of October). In 2024, growth is forecast to return to positive at +1.1%, below potential.
Inflation reached 11.1% in October as energy prices rose in line with the government’s Energy Price Guarantee (EPG). In the short term, inflation is expected to remain above 10%. In April, the EPG will lead to a further increase in energy prices (+20%) in line with the government’s planned energy price cap (GBP3,000 per year for the average household). Our central scenario continues to expect a sharp drop in inflation during 2023 due to base effects becoming favourable, the expected easing of global bottleneck issues, and the anticipated decline in domestic demand.Slavena NAZAROVA, Economist