U.K. economic contraction in 2023 it is expected to be as severe as Russia, as a sharp fall in household living standards affects activity.
In its 2023 macro outlook, Goldman Sachs forecasts a 1.2% contraction in U.K. real GDP. throughout the year well below all other major G-10 economies. The figure puts Britain only slightly ahead of Russia, based on the bank's projections. Russia is expected to contract 1.3% in 2023 as it continues to wage war in Ukraine and economic sanctions from western countries. This will be followed by an expansion of 1.8% in 2024.
The Wall Street giant also predicts US expansion of 1% in 2023 and 1.6% in 2024. On the other hand, Germany is expected to record the next worst performance among major economies after Russia and the U.K., which is expected to witness a contraction of 0.6% this year, then grow by 1.4% in 2024.
On the other hand, the OECD also predicts that the U.K. will lag significantly behind other developed countries this year and next year despite facing the same macroeconomic problems as other countries.
According to Goldman's Chief Economist Jan Hatzius and his team, several European countries and the UK, both are already in recession. This is because it is experiencing "larger and more prolonged increases in household energy bills" that will push inflation to higher peaks than seen elsewhere.
"Furthermore, high inflation will affect real income, consumption and industrial production. We forecast a further decline in real income of 1.5% in Europe in the first quarter of this year and 3% in the U.K.” report them.
Consulting firm KPMG projects that UK real GDP will contract by 1.3% in 2023, amid a "shallow but lingering recession", before seeing a partial recovery of 0.2% in 2024.
Pressure on incomes is cited as a key driver, as higher inflation and interest rates significantly constrain household purchasing power. The Bank of England raised rates by 50 basis points to 3.5% in December in a move to tackle inflation.
KPMG expects the central bank to increase the bank rate to 4% in the first quarter of this year before adopting a "wait and see" approach, when inflation gradually eases.
