The UK economy is set to grow by 0.6% in 2023, up from the earlier prediction of 0.4%, according to the latest Autumn Forecast from the EY ITEM Club.
The growth estimate for 2024 has been revised down slightly from 0.8% to 0.7% due to the impact of recent interest rate rises.
Inflation is expected to decrease to around 4.5% by the end of 2023 and further fall to the Bank of England’s 2% target by the second half of 2024.
Factors such as rising oil prices, fixed income tax thresholds, inflation, and a weaker labour market might impact consumer spending.
Despite the higher borrowing costs, business investment growth for 2023 has been upgraded.
The forecast suggests the UK will avoid a recession, but GDP growth might remain slow through 2023 and 2024 due to high interest rates and labour market challenges.
Hywel Ball, UK chair at Ernst & Young LLP (UK) and Peter Arnold, UK chief economist at Ernst & Young LLP (UK), said: “These are hardly stellar growth figures — for many, it may still feel like a recession.
“Businesses and consumers alike will need to plan accordingly. In particular, they need to continue to take action to address their exposure to higher interest rates and focus on maximising their operational performance in challenging circumstances.”
“As an election year looms, there will be plenty of interest in November’s Autumn Statement — but perhaps we shouldn’t expect too much. The public finances remain challenging despite fiscal drag and inflation increasing the tax take.
“Any apparent headroom will likely be struck out by a revised set of forecasts from the OBR come November and from higher debt servicing costs — whilst the lessons of 12 months ago from the ‘Mini-Budget’ and the current heightened tension in global bond markets make a relaxation of any fiscal rules difficult.”
They added: “The Chancellor, on the lookout for a few fiscal tailwinds heading towards a general election, will be hoping for another mild winter and an economy that proves to be as resilient as it was this time last year. Watch this space.”
