Phil was one of more than 100 economists and analysts asked to submit their answers to three questions about the outlook for the UK economy in 2023. The questions and (edited) answers were:
(1) Will the UK economy outpace or lag behind other developed economies in 2023 and how will it feel for households?
(A) The British economy will likely lag most of its developed peers in 2023 and will fall into recession. One reason is a continued fall in real household income. Real wage growth in 2022 fell at the fastest rate for some 50 years and, thanks to high inflation and Brexit, will continue to cause severe pain for households next year.
(2) How tough will the Bank of England need to be in 2023 to curb inflation?
(A): The Bank has already been tough and needs to stop raising Bank rate when it gets to 4 per cent — if not before. The danger is now more that it will tighten policy more than is needed and depress economic growth even further than is needed to hit the 2 per cent target than it fails to counter inflationary pressures that are receding.
(3) Will the government need to announce further tax raises in 2023 to maintain sound public finances?
(A) No. It has already enacted steep taxes and heralded cuts in spending that risk a repeat of the damaging austerity programme of 2010. These will depress growth and affect the poorest households the most. The government is probably prevented from allowing borrowing to rise to cater for greater public spending (as it did during Covid-19) because of the echoes of the disastrous economic programme of Liz Truss that undermined the confidence of the financial markets in the current administration.
(4) Will we see green shoots of recovery starting by the end of 2023?
(A): Hardly. The fiscal tightening will exert a large drag on the economy through 2024. Growth may return towards the end of the year but this will etiolated strands of grass rather than a lush meadow.
(5) What is the best historical comparison for the downturn the UK faces in the year ahead?
(A): The 2009-10 recession and anaemic recovery probably give the best road map. The downturn has not been as severe but the recovery will be as lacklustre. This time, rather than from financial sector failures, it will be the after-effects of a hard Brexit that will hang over the economy for years. A likely housing market correction or crash will not help either.
(6) Is there anything else you would like to tell us?
(A): The British economy will likely lag most of its developed peers in 2023 and will fall into recession. One reason is a continued fall in real household income. Real wage growth in 2022 fell at the fastest rate for some 50 years and, thanks to high inflation and Brexit, will continue to cause severe pain for households next year.
The full responses are here