Leading economic analysts at the business firm EY believe that the impending recession in the UK may be twice as terrible as previously thought. The firm’s analysts have concluded that the following three years may be worse than they had predicted three months ago due to decreased government backing, increased taxes, and a generally worsening outlook.
The gross domestic product (GDP) was expected to decline by 0.3% this year, grow by 2.4% the following year, and then rise by 2.3% in 2025, according to EY’s Item Club forecast from October. However, a revised public prediction indicated that GDP would contract by 0.7% this year before expanding by 1.9% and 2.2% in the next two years.
Overview of the situation
The downgrading runs counter to recently released economic data and the World Economic Forum in Davos consensus, which suggested that the world’s prospects were not as bleak as first thought. The FTSE 100 has been getting close to reaching its all-time high in recent weeks.
According to Hywel Ball, chair of EY UK, “UK’s economic picture has grown bleaker than expected in the autumn, and the UK may already be in what has been one of the most widely anticipated recessions in living memory.” While the recession may be more severe than initially anticipated, according to Ball, it won’t necessarily endure as long.
According to EY, it was still uncertain if the nation had entered a recession, indicated by two consecutive quarters of declining GDP. While the economy contracted in the third quarter of last year, recent GDP data revealed an unexpected 0.1% growth in November, giving some experts hope that the fourth quarter may improve.
The EY recession in the UK was anticipated to begin this year, followed by a period of contraction in the first half of 2023, and growth resumed in the summer. The recession, it was emphasized, will likely be less detrimental to the economy than the recessions of the 1980s, 1990s, and 2000s.
The government’s energy support program is expected to become £500 less generous for the typical household starting in April, which would significantly increase inflation. Economists predicted that inflation would reach 7.2% this year on average.