Think tank forecasts a recession in the UK

Experts warn slowdown may be deeper, call for urgent sustained intervention

The United Kingdom's economy is on course for a recession that will cost millions of households their savings, according to a leading think tank.

The latest forecast from the National Institute of Economic and Social Research, or NIESR, paints a gloomy picture, warning that average real household disposable incomes would diminish by 2.5 percent this year, as wages fail to keep pace with rising costs.

The NIESR noted that surging gas and food prices mean inflation could reach 11 percent in the fourth quarter of this year, and said the retail prices index (RPI), which measures the monthly change in the cost of goods and services, is expected to hit 17.7 percent, reported Reuters.

The think tank expects the economy to grow just 3.5 percent this year, and only 0.5 percent next year.

Adrian Pabst, the NIESR's deputy director for public policy, was quoted by The Guardian as saying the current political uncertainty in Westminster was delaying fiscal support for the most vulnerable, and called on the next prime minister to take urgent action.

He said: "All households are facing soaring energy and food bills but too many have to resort to credit, build up payment arrears or see their savings wiped out.

"The incoming administration needs to provide immediate emergency support to the 1.2 million hardest hit households and the one-in-five households that will become financially vulnerable as the energy price cap is lifted and the recession begins to bite."

The report said GDP would contract in the third and fourth quarters of the year, and in the first of next year, which the think tank described as a "three-quarter technical recession, but a relatively shallow one".

It also said there is an "increased possibility of a deeper recession", and noted the threat of so-called stagflation, which is when an economy sees slow growth, high unemployment and rising prices.

NIESR Director Jagjit Chadha said poorly funded public services had been left exposed to the consecutive economic shocks of Brexit, the COVID-19 pandemic and the conflict in Ukraine, reported the Financial Times.

"It needs urgent and sustained, and credible, intervention by successive governments," Chadha told reporters at a news conference.

Stephen Millard, NIESR's deputy director for macroeconomics, urged the Bank of England to get inflation under control and for the government to support households hardest hit.

He said: "The UK economy is heading into a period of stagflation with high inflation and a recession hitting the economy simultaneously."

The think tank said interests rates would need to rise to 3 percent by the end of next year to contain inflation, which is higher than the 2.25 percent peak predicted in the latest Reuters poll consensus of economists.

The central bank's monetary policy committee will assess the state of the economy and make its latest decision on interest rates on Thursday.