(STL.News) If there is one news story that has been constantly present in the UK media throughout 2022, it is the ongoing struggles that many across the island are having with the rising cost of living.
Unfortunately, however, it seems that despite a slightly brighter outlook for the global economy, the UK will begin 2023 on the brink of recession as households, businesses, and individuals across the country come under further pressure from the deepening cost of living crisis.
Not only are inflation levels at the highest rates we have seen since the 1980s, but the Bank of England has also recently predicted that the UK is set to experience a prolonged period of recession. This will lead to households across the country being increasingly unable to afford essentials such as food and energy.
But what exactly is the UK’s economic outlook for 2023? And can we expect the intense macroeconomic pressures many experienced in the last year to ease up?
The UK economy at the end of 2022
Before we look at the predictions for the UK economy in 2023 and beyond, we should first get a sense of what the picture looked like in 2022.
According to recent reporting by the Organisation for Economic Co-operation and Development (OECD), the UK economy recovered relatively well from the Covid-19 pandemic. This was in large part due to the emergency support measures brought in by the government of the day, which helped to protect jobs and personal incomes.
However, as these supports ended, the UK then had to grapple with rising rates of inflation caused, in part, by the ready availability of central bank lending during the earlier stages of the pandemic. This combined with the emerging war between Russia and Ukraine, which added significantly to inflation rates due to rising energy costs.
At the same time, ongoing issues related to the implementation of the British public’s decision to leave the European Union had a resulting effect on the UK economy. The inability of successive UK governments to secure a satisfactory deal meant that the UK was, by and large, experiencing an overall reduction in its economic outlook.
One report by the Centre for European Reform has estimated that the UK’s entire GDP has reduced by 5.5% as a direct result of Brexit. However, in addition to the response to what is GDP currently in the UK, investment and trade are also down considerably. This is in addition to the steady devaluing of the pound sterling, which has fallen at a rapid rate since the Brexit referendum was implemented.
Regardless of whether you specifically agree with the Centre for European Reform’s conclusions about the effect of Brexit on the UK’s GDP or not, the picture is clear; the economic outlook is not looking particularly rosy!
This prompted CNN to describe Brexit as having “cracked Britain’s economic foundations.” But will this remain true in 2023?
The outlook for 2023
While the reports vary depending on who you ask, the consensus is generally pretty clear; the UK looks set to experience a recession in 2023.
The recent macro-economic outlook by Goldman Sachs analysts has forecast that the UK economy will experience a contraction of 1.2% in real GDP over the course of the year.
Not only is this well below the growth forecasts of other G10 economies, this figure places the UK only fractionally ahead of Russia, which is projected to experience a 1.3% contraction in its economy in 2023. This is despite the fact that Russia is not only waging a costly war against Ukraine, which is becoming increasingly resource intensive but is also subject to incredibly punitive economic sanctions by numerous Western countries.
In terms of what this means for individuals living in the UK, we can expect to see the cost of living remains high, widespread cuts to government spending, and the possibility of job losses across all sectors of the economy.
The forecast for 2024 and beyond
Looking beyond a rather rocky 2023, however, what is the outlook for 2024?
According to the OECD, the rough economic weather does not look set to subside anytime soon. In 2024, they have predicted that UK GDP will increase by just 0.2%.
Although inflation will likely settle back down to a more manageable 2.7% — down from a peak of around 10% in late 2022 — growth is expected to be both gradual and relatively modest at around 0.2%. This is compared to Britain’s European neighbors, who are expected to grow by an average of 1.5-1.9% across the block.
It seems that the UK is set to experience tough economic times in the months and years to come. The continuing aftershocks of the Covid-19 pandemic, the war in Ukraine that continues to wage, the ongoing fallout from Brexit, and a long-term sickness crisis that has severely tightened the domestic labor market have all combined to paint a rather gloomy economic picture.