Jeremy Hunt delivers speech on plans for the UK economy
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An economist has warned that “the worst is yet to come” for the UK economy despite Britain narrowly avoiding a recession. Thomas Pugh, economist at audit, tax and consulting firm RSM UK, has predicted that the UK’s GDP will contract in the first half of 2023, resulting in a recession later this year.
Speaking on Friday morning, he said: “The UK has avoided falling into recession by the skin of its teeth, but the worst is yet to come. There are clear signs that the economy has deteriorated over the last few months, GDP fell by 0.5 percent in December after growing by 0.1 percent in November.
“The combination of double-digit inflation, the huge rises in interest rates over the last year and less fiscal support means households real disposable incomes are set to shrink sharply in the first half of this year.
“That will lead to falling consumer spending and a shrinking economy. As a result, we think the recession has just been delayed rather than cancelled.
“Of course, narrowly avoiding a recession doesn’t change much on the ground. For businesses operating in the real economy a rise in GDP of 0.1 percent doesn’t feel much different to a drop in GDP of 0.1 percent.
“But a milder recession would mean that unemployment rises more slowly, wage growth stays strong and domestically generated inflation falls at a slower pace than expected.
“This could result in the Bank of England (BoE) raising rates by more than expected.”
His comments come after the Office for National Statistics (ONS) reported that the UK economy remained flat at a 0 percent growth rate in the fourth quarter of 2022.
Had the economy shrunk, the UK would have met the criteria for a recession – two consecutive quarters of contraction.
ONS director of economic statistics, Darren Morgan, said strikes and the break in Premier League football for the World Cup had a big impact on the UK economy.
He said: “The economy contracted sharply in December meaning, overall, there was no growth in the economy over the last three months of 2022.
“In December public services were hit by fewer operations and GP visits, partly due to the impact of strikes, as well as notably lower school attendance.
“Meanwhile, the break in Premier League football for the World Cup and postal strikes also caused a slowdown.
“However, these falls were partially offset by a strong month for lawyers, growth in car sales and the cold snap increasing energy generation.
“Across 2022 as a whole, the economy grew 4 percent.
“Despite recent squeezes in household incomes, restaurants, bars and travel agents had a strong year. Meanwhile, health and education also began to recover from the effects of the pandemic.”
Chancellor Jeremy Hunt was also warned that the UK is “not out of the woods” when it comes to economic challenges.
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He said on Friday: “The fact the UK was the fastest growing economy in the G7 last year, as well as avoiding a recession, shows our economy is more resilient than many feared.
“However, we are not out the woods yet, particularly when it comes to inflation.”
Economists fear that a recession in the first half of 2023 remains a threat, with the International Monetary Fund (IMF) predicting that the UK economy will be the worst performer in the developed world.
Last week, the Bank of England hiked interest rates for the tenth consecutive time, bringing the figure to four percent.
But Governor Andrew Bailey gave a hint of optimism, telling Sky News: “I do see the signs that we’re turning a corner, and that obviously is encouraging but there’s a long way to go. There’s still some very big risks out there.”
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