UK economy to avoid recession, says Hunt

The UK economy is set to shrink this year but avoid a technical recession, according to the government’s independent forecaster.

The Office for Budget Responsibility (OBR) now expects the size of the economy to fall by 0.2% in 2023.

But it will escape the usual definition of a recession, which is two consecutive three-month periods of decline, Chancellor Jeremy Hunt said.

It came as he set out the government’s growth plans in the Budget.

The OBR also said inflation would more than halve to 2.9% by the end of 2023.

Inflation – the rate at which prices are rising – is currently in double digits, driven by soaring food and energy prices.

In a growing economy, the value of the goods and services that the country produces – measured by gross domestic product (GDP) – increases each quarter.

It is a sign that people are doing more work and, on average, getting a little bit richer.

But sometimes the level of GDP falls, and that is a sign that the economy is doing badly.

The OBR said the economy was still likely to shrink this year, but by less than it previously thought.

It now expects GDP to fall by 0.2% in 2023, having predicted a 1.4% drop six months ago.

The OBR also increased its growth forecast for 2024 to 1.8% from 1.3%.

However, it downgraded its forecast for the following three years to 2.5% in 2025, 2.1% in 2026 and 1.9% in 2027.

Mr Hunt said the economy was “proving the doubters wrong”.

But Labour leader Sir Keir Starmer said the Budget was “dressing up stagnation as stability”, adding that it put the country “on a path of managed decline”.

He also said the chancellor’s “boast” about bringing down inflation was “ridiculous”, adding that it was the sacrifice of working people who are earning less and enjoying life less that was helping to bring inflation down.

Even with the improved forecast for economic prospects, the OBR is still warning of a big drop in living standards.

Once the impact of inflation is taken into account, incomes are expected to fall by 5.7% in total between 2022 and 2024. That is the largest two-year fall since records began in the mid-1950s.

The OBR warned living standards would not recover to pre-pandemic levels until at least 2027.

The chancellor has announced that the economy will avoid a “technical recession” this year, but that doesn’t mean we’re out of the woods.

The size of the economy – the value of everything we make and produce this year – is set to fall by about 0.2% according to the chancellor’s figures.

It becomes a “technical recession” if the economy shrinks for two seasons (three-month periods) in a row. So it’s possible to avoid the technical definition even if the economy is doing badly if it shrinks in the spring and autumn but rises in the summer.

A forecast of a 0.2% shrinkage may be better than we thought last autumn (shrinking by 1.4%) but it’s hardly anyone’s definition of doing well.

The chancellor also said the UK was on track to meet the government’s self-imposed fiscal rules.

“We are meeting our fiscal rule to have debt falling as a percentage of GDP by the fifth year of the forecast,” Mr Hunt said.

“At the Autumn Statement I also announced that public sector net borrowing must be below 3% of GDP over the same period,” he continued.

“The OBR confirm today that we are meeting that rule with a buffer of £39.2bn. In fact our deficit falls in every single year of the forecast.”

The OBR forecasts the deficit will fall from 5.1% of GDP in 2023-24 to 1.7% in 2027-28.