The UK is set to narrowly avoid a recession this year, although it will still feel like one for seven million families.
Despite the ongoing cost of living crisis, the National Institute of Economic and Social Research (Niesr) said there should be marginal growth this year.
According to the think tank, the UK economy is predicted to grow by 0.2% in 2023.
This means the country will technically avoid going into recession – defined as when the economy shrinks for two consecutive three-month periods.
The findings are a more optimistic outlook than offered by the Bank of England last week, which predicted a shallower but still protracted recession throughout the year.
But that is largely where the optimism ends, with Niesr warning it will ‘certainly feel like a recession’ to many, with people’s disposable income set to take a big hit.
It projects one in four UK households – some seven million families – won’t meet their planned energy and food bills in full from their post-tax income, up from one in five last year.
Middle-income households will have up to £4,000 less to spend this year, with people’s disposable income set to reduce by 7 to 13%.
Niesr predicts GDP will be ‘anaemic’ and remain close to zero throughout the year, eking out an expansion of just 0.2% in 2023.
The think tank also predicts inflation – currently at 10.5% – will only fall to 5.3% by the end of 2023, and stay above 3% throughout 2024.
Inflation will not reach the Bank’s 2% target until the third quarter of 2025, it said.
It predicted fewer people will be able to retire early, and more workers between the ages of 50-64 will be forced to return to work.
Niesr also said it believes interest rates rises ‘may almost have finished’, with the Bank delivering its 10th hike on Thursday last week, from 3.5% to 4%.
But the report added that: ‘If core inflation remains high, interest rates may have to remain at their peak for a longer period than we and the markets currently anticipate.’
Niesr called on Chancellor Jeremy Hunt to loosen his fiscal policy at his upcoming Spring Budget, ‘rather than allowing himself to be governed by self-set fiscal targets’.
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