The British Chambers of Commerce (BCC) on Wednesday predicted that the country’s economy is on track to contract less than expected this year and avoid the two quarters of negative growth that characterize a technical recession.
The better outlook aligns with other measures of the UK economy, such as the Purchasing Managers ‘ Index (PMI) and consumer confidence data, which have improved in recent weeks.
The BCC forecast gross domestic product (GDP) to fall 0.3% this year, a smaller decline than its previous forecast of 1.3%, following stronger activity in late 2022.
Official data shows that the economy narrowly avoided a recession after zero growth in the last quarter of 2022. The figures for January will be announced on Friday.
On a quarterly basis, GDP is expected to decline by 0.3% in the first quarter of 2023, show zero growth in the second quarter, and increase by 0.2% each time in the third and fourth quarters of 2023.
Economists polled by Reuters predicted last month that the economy would shrink by 0.4% in the first and second quarters and then fall by 0.1% in the third quarter.
The BCC expects the economy to grow by 0.6% next year, while the Bank of England (BoE) forecast a quarter-percent contraction for 2024 last month.
Despite the upward adjustment, companies are facing a difficult year due to problems with staff shortages, rising taxes and energy bills, said Alex Veitch, director of policy at the BCC.
Veitch said the economy is in danger of falling behind competitors if Chancellor Jeremy Hunt does not provide incentives to help companies in his annual budget next week.
“If he supports them, by taking childcare measures to reduce the staff shortage and by helping them control their energy costs, then the UK economy can still flourish,” he said.
Britain is the only economy in the group of seven that has not yet returned to pre-pandemic levels and the BCC predicts that this will not be the case until the last quarter of 2024.
While consumers and businesses continue to be hit by double-digit inflation, the BCC expects inflation to fall to 5% in the fourth quarter and 1.5% by the end of 2024.
UK inflation fell to 10.1% in January, further approaching the 11.1% peak reached in October 2022.
The BCC expects the BoE’s interest rate to be a quarter point higher at the end of the year – bringing the rate to 4.25% – and that the rate will be reduced to 3.5% by the end of 2024.
