Britain is sinking into a long economic slump that will deal the biggest hit to household finances on record, a new report released today shows.
A historic inflation surge led by sky-high energy bills is set to tip the country into a recession this year, wiping off £2,000 of Brits’ real take home pay, according to consultancy PwC.
Despite the record living standards hit, businesses and households will be in the throes of a prolonged economic malaise.
PwC thinks the UK economy could shrink as much as 1.3 per cent and 0.3 per cent in 2023 and 2024 respectively. Under a rosier scenario, the economy would grow 0.2 per cent and 0.6 per cent next year and in 2024.
The fresh forecasts chime with experts’ consensus view that the UK economy will sink into a long recession beginning at the end of this year without more government support to cushion the cost of living crisis.
Nick Forrest, UK economics consulting leader at PwC said: “It is now likely that the UK will enter recession this year, although the path of natural gas prices and degree of government support will influence the potential size and scale of a downturn.”
“Businesses and consumers could face two ominous milestones in the months ahead: a potential five-decade high in the inflation rate, and the largest fall in real wages since records began,” he added.
Inflation is already running at a 40-year high of 10.1 per cent, but may reach above 22 per cent, investment bank Goldman Sachs has warned.
Inflation is the rate of price rises in an economy. If it outstrips pay growth, households’ living standards fall, meaning they cannot buy the same quantity or quality of goods and services.
New prime minister Liz Truss will reportedly this week freeze energy prices at their current level of nearly £2,000.
It is understood under the scheme, energy providers would tap a government fund or loans to bridge the shortfall between the cost of buying wholesale energy prices and customer bills.
PwC’s report also illustrates the scale of lost output caused by the UK’s dismal productivity growth since the financial crisis.
“If all regions [of the UK] improved productivity in their respective industries to at least the national industrial median, this could potentially add as much as £71.6bn to the total UK output per year, estimated to be around 3.4 per cent of total GDP in 2023,” the report said.