Financial analysts expect the UK's 2023 economic contraction to be as deep as Russia's since steep household living standards weigh on it. They have predicted a 1.2% contraction in the UK real GDP throughout the year. The analysts also predicted a 0.9% expansion later in 2024. On the other hand, Russia might encounter a 1.3% contraction in 2023.
These figures place the UK fractionally ahead of Russia as the country wages war in Ukraine and struggles with punitive economic sanctions. In any case, analysts explained that the country will later record a 1.8% expansion in 2024. Another worse performer in the major economies is Germany, which might record a 0.6% contraction in 2023 with a 1.4% expansion in 2024. Yet, the US expects a 1.6% expansion in 2024 and a 1% contraction in 2023.
These projections for the UK economy are below the market consensus of about 0.5% contraction in 2023 and at least a 1.1% expansion in 2024. Meanwhile, the OECD (Organization for Economic Cooperation & Development) has predicted the UK will lag behind major economies. The similarity in performance between the UK and Russia is that they face the same macroeconomic factors.
The UK and Euro region might be already in recession since they have endured a more drawn-out and much more significant increase in household energy costs. These high bills might drive the inflation rate to the worst higher peaks. Thus, the UK Budget Responsibility Office has projected that the country is gambling with its sharpest collapse in living standards. The OBR has also predicted a 4.3% fall in household disposable income.
Other financial consultancy firms have predicted a 1.3% contraction in the UK real GDP in 2023. The squeeze comes amid a protracted and relatively shallow recession before a partial 0.2% expansion in 2024. What’s more, the pressure on income might be a substantial factor, as higher interest rates and inflation curtail household purchasing power. The central bank raised the rate to 3.5% by 50 basis points in December to lower the inflation rate.
Analysts have predicted another 50 basis point interest rise to 4% in the first quarter of 2023. Hence, they may adopt the ‘wait-and-see approach’ while inflation increases. Apart from the global economic factors due to the Ukraine invasion, the aftermath of the Covid-19 pandemic and the restrictions in China are a concern. Overall, the United Kingdom also faces unique internal factors like the long-term sickness crisis in the labor market. The country is also battling with the impacts of exiting the European Union.
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