Think Tank forecasts UK as a whole will dodge technical recession this year
Northern Ireland already entered a technical recession in mid 2022, according to an official government measure
An economic think tank is forecasting that the UK as a whole will avoid a recession this year, despite Northern Ireland officially entering a technical recession during 2022.
The National Institute of Economic and Social Research (Niesr) said the UK-wide economy should dodge a technical recession - as defined by two or more quarters of falling gross domestic product (GDP) in a row - not just in the final three months of 2022, but also throughout 2023.
It comes just four weeks after a report by the Northern Ireland Statistics and Research Agency (Nisra) concluded that the north entered a technical recession last summer.
The Northern Ireland Composite Economic Index, which is considered a similar measure to GDP, showed the economy here contracted by 0.3 per cent between the second and third quarters of 2022.
It marked the second successive quarter of decline, crossing the threshold for a technical recession.
The next NI Composite Economic Index, which will detail how the north’s economy fared in the final three months of 2022, is not due to be published until early April.
Despite the official measure, Niesr has presented a more optimistic outlook for the wider UK economy than that offered by the Bank of England last week.
The Bank predicted a shallower but still protracted recession, as well as a recent gloomy prediction from the International Monetary Fund (IMF), which saw the UK being the only major economy to suffer a contraction this year.
But that is largely where the optimism ends, with Niesr warning in its latest report that it will "certainly feel like a recession", with real personal disposable income having contracted for four consecutive quarters.
It projects that one in four UK households - some seven million families - will be unable to meet in full their planned energy and food bills from their post-tax income in the 2023-24 financial year, up from around one in five in 2022-23.
Middle-income households, will face a hit to their personal disposable income ranging from 7 per cent to 13 per cent, reaching up to £4,000 in the financial year 2022-23, Niesr said.
It is predicting that GDP will be "anaemic" and remain close to zero throughout the year, eking out expansion of just 0.2 per cent in 2023, with the Bank's slew of interest rate rises adding to cost pressures for consumers and businesses.
The group also predicts that inflation - currently at 10.5 per cent - will only fall to 5.3 per cent by the end of 2023 and stay above 3 per cent throughout 2024.
Inflation will not reach the Bank's 2 per cent target until the third quarter of 2025.
Professor Leaza McSorley, senior research manager at Niesr, said: "The UK economy performed better than forecast in 2022, with annual GDP growth of 4.1 per cent and unemployment at 3.7 per cent.
"So, while the economy seems unlikely to fall into a protracted contraction, the risks are skewed on the downside with higher Bank rate and some withdrawal of fiscal support likely to bear down on activity over the course of 2023 and 2024."
Niesr also said it believes that interest rates rises "may almost have finished", with the Bank delivering its 10th hike on Thursday last week, from 3.5 per cent to 4 per cent.
But the report added that: "If core inflation remains high, interest rates may have to remain at their peak for a longer period than we and the markets currently anticipate."
The Bank is facing a "difficult" path ahead, according to Niesr.
"Given the extent to which the Bank has received criticism for not tightening quickly enough when there were signs of the economy overheating in the post-pandemic recovery, it is possible that monetary policymakers will loosen too quickly to avoid the converse criticism."
Niesr is calling on Chancellor Jeremy Hunt to loosen his fiscal policy at his upcoming Spring Budget, "rather than allowing himself to be governed by self-set fiscal target", as well as to ramp up public sector investment and develop a new energy support tariff that discounts bills for the poorest households and raises the price with usage to incentivise efficient energy consumption for the more affluent.