By David Milliken
LONDON – Britain will dodge recession this year but its people will face the after-effects of a severe fall in living standards caused by surging inflation, which will leave millions struggling to pay their bills, academic researchers forecast on Wednesday.
Britain’s National Institute for Economic and Social Research (NIESR) cut its forecast for gross domestic product growth this year to 0.2% from 0.7% in its last forecast in November, and sees growth of 1.0% in 2024, down from 1.7%.
NIESR Director Jagjit Chadha said the forecasts painted “an incredibly depressing picture”, particularly for living standards which are set to stagnate this year after falling sharply last year due to the surge in energy prices.
One in four British households would be unable to pay for food and energy without using up savings, borrowing or seeking other help in the 2023/24 financial year, up from one in five during the current year, NIESR said.
Prime Minister Rishi Sunak has said one of his top goals is to ensure inflation halves this year – as had already been forecast by the Bank of England (BoE) – and the country is in the middle of a wave of strikes as workers seek higher pay.
Overall, most Britons needed to accept that their incomes had fallen in real terms and could not be easily made up by higher pay, Chadha said – echoing a message from the Bank of England last week when it raised interest rates to a 14-year high of 4% to tackle inflation that is still above 10%.
The poorest 10% of Britons had seen little drop in income – thanks to welfare benefits rising in line with inflation – but middle income households faced a fall in real income of up to 13% or 4,000 pounds ($4,800) during the year to the end of March 2023, NIESR said.
NIESR‘s growth forecasts are somewhat more upbeat than those of the BoE and the International Monetary Fund (IMF), which both forecast last week that Britain’s economy would shrink in 2023.
However, the think tank also sees significantly more persistent inflation pressures, as core inflation – which excludes energy and food prices – looks sticky, while the impact of higher interest rates takes time to feed through.
Leaza McSorley, senior research manager at NIESR, said there was little sign of businesses reducing prices, even after big falls in costs such as shipping, which soared during the pandemic.
NIESR predicts consumer price inflation will take until late 2025 to return to its 2% target, and to average 8.3% this year and 4.2% in 2024 – more than double the BoE’s forecasts.
($1 = 0.8332 pounds)