UK economy likely to avoid recession - think tank

The UK is likely to avoid a recession this year, an economic think tank has predicted.

The National Institute of Economic and Social Research (Niesr) said the economy will grow marginally despite high prices hitting household budgets.

But it warned while the UK may not fall into recession, it will feel like one for at least seven million households.

The forecast comes ahead of official figures showing how well the economy is doing, which are due on Friday.

A recession is defined as when the economy shrinks for two consecutive three-month periods. Typically this means companies make less money and cut jobs and government tax revenues fall.

Niesr predicts the economy will grow by just 0.2% this year, and 1% in 2024. The forecast paints a slightly more optimistic picture than others, such as the Bank of England's.

However, Niesr warned that the rising cost of living meant it would still feel like a recession for millions, particularly in the North East of England and parts of Scotland, Wales and Northern Ireland.

• What is a recession and how could it affect me?

• Over-50s: We are not seen as useful at work

• IMF: UK to be only major economy to shrink in 2023

Inflation, the rate at which prices rise, has been hitting household budgets as energy and food costs soar.

Niesr said one in four UK households - some seven million families - would be unable to fully cover their and food and energy bills in the 2023-24 financial year, up from around one in five in 2022-23.

Middle-income households would also face a hit to their disposable income ranging from 7% to 13%, reaching up to £4,000 this financial year, it said.

The think tank said it meant fewer will be able to retire early, and more workers between the ages of 50-64 will return to work.

The government has been considering plans to coax retired middle-aged workers back into jobs to boost the economy, with 300,000 fewer people in employment than before the pandemic.

'Not immune'

Commenting on the forecast, a Treasury spokesperson said the UK was not immune to global challenges of high inflation and slow growth.

The government says it plans to halve inflation - which is 10.5% - this year, but many economists expect this to happen anyway as energy prices fall and post-pandemic supply problems ease.

The Bank of England said last week that the UK is set to enter recession this year, but the downturn would shorter and less severe than previously expected. It predicts the slump will now last just over a year rather than almost two.

Meanwhile, the International Monetary Fund (IMF), which works to stabilise economic growth, has also forecast that the UK will fall into recession this year and perform worse than any other advanced economy, including Russia.

Economic forecasters are not always right when it comes to predicting the future. For example, the IMF's forecasts have picked up fewer than 10% of recessions a year ahead of time, according to an analysis it conducted of recessions around the world between 1992 and 2014.