The UK is facing a lengthy recession, KPMG warned on Monday, as high inflation and rising interest rates continue to squeeze incomes throughout 2023.
Publishing its latest UK Economic Outlook, the accountancy firm predicted that the recession would be “shallow but protracted”, with GDP expected to shrink by 1.3% across 2023.
There is then likely to be only a partial recovery in 2024, with growth forecast to be 0.2%.
Between the third quarter of 2022, when the UK is estimated to have fallen into recession, and the end of 2023, output is forecast to fall by 1.9%.
Yael Selfin, chief economist at KPMG UK, said: “The increase in energy and food prices during 2022, as well as higher overall inflation, have significantly reduced household’s purchasing power. Rising interest rates have added another headwind to growth.
“Households are expected to rein in spending on discretionary items in 2023 in response to the squeeze on incomes.”
Inflation is forecast to average 7.0% in 2023, the Big Four firm said, an increase on its last estimate of 5.6%. Inflation hit a record high of 11.1% in October before falling back to 10.4% last month. Many economists believe it has now peaked, but it will fall only gradually throughout 2023.
Interest rates, which have been rising in response to soaring inflation, are forecast to peak at 4% by spring. The Bank of England last week increased the cost of borrowing by 50 basis points to 3.5%.
KPMG also expects the labour market to deteriorate from the first half of 2023, with the unemployment rate set to reach 5.6% by mid 2024.
