The UK’s economy will to flatline rather than contract in 2023, according to analysts from Deutsche Bank, as last week’s upgrade to GDP for the final quarter of 2022 will likely have a positive knock-on effect for the remainder of this year.
The ONS revised its initial GDP reading for the fourth quarter of 2022 last week, upgrading it by 0.1pp on the back of strong private consumption.
Senior economist at Deutsche Bank Sanjay Raja said that this revision will have a “positive carry over” into 2023, helping the economy to avoid contraction this year.
“In updating our GDP models, we now see 2023 GDP no longer contracting,” Raja wrote in a research note published today.
This is the third upward growth revision Deutsche Bank has posted this year. The bank had previously expected the economy to contract 0.2 per cent over the course of the year.
Markets expect the UK’s economy to shrink 0.4 per cent in 2023, but Raja said markets are “slowly but surely catching up” with Deutsche Bank’s more positive predictions.
However, Raja said there are still “big gaps” if the UK wants to equal its pre-pandemic performance. In particular household consumption and business investment are two per cent below levels in the final quarter of 2019.
Raja also highlighted UK export volumes, which are still around 1.5 per cent below pre-pandemic levels, as an area for improvement.
However, he remained “cautious” around the UK outlook, “particularly with the effects of rate rises feeding through more fully into the economy”.
The UK has been teetering on the edge of recession for much of the end last year, after the economy shrunk 0.3 per cent in Q3. A recession is defined as two consecutive quarters of negative GDP growth.
Although Deutsche Bank seems increasingly rosy about the UK’s prospects, others suspect that a recession could still be around the corner.
Last week, KPMG suggested that the impact of higher interest rates and a cost of living squeeze will help push GDP 0.3 per cent lower in 2023.