UK faces worst recession of any G7 nation in 2023
A difficult year for the global economy is expected to hit some countries harder than others.
With 2023 upon us, many bankers, economistsY business leaders They have warned to prepare for a global economic contraction that will plunge many countries into recession. As much as one third The world economy could enter a recession this year, IMF chief Kristalina Georgieva said over the weekend, warning that a “difficult year” was ahead for the world.
Georgieva said that simultaneous contractions in three major economies – the US, the EU and China – will be the driving forces behind a global recession, as rich nations will not be able to escape the economic slowdown.
UK in trouble
But with the lingering effects of the pandemic and the war in Ukraine continuing to drag down growth for the rest of 2023, some developed countries will fare much worse than others.
The UK is facing a “deeper and longer recession” than any nation in the G7, a global policy forum representing seven of the world’s most advanced economies, as around four-fifths of economists say the UK will be hit by a much longer recession. than their peers, according to a financial times poll released on Monday.
The FOOT surveyed 101 UK economists about the country’s economic prospects compared to other G7 countries, finding that a “clear majority” of economists surveyed believed the UK was facing a far more severe economic contraction than anticipated. it will take longer to recover.
Economists agreed on persistently high inflation, a shrinking workforce, declining trade relations with the EU and high exposure to energy crisis triggered by the Ukrainian War were the main factors behind the comparatively bleak prospects for the UK.
“The UK has an energy shock as bad as Europe, an inflation problem…as bad as the US, and a unique job shortage problem from the combination of Brexit and the NHS crisis. “, Ricardo Reis, economist and professor surveyed. at the London School of Economics, he said in the survey.
A tough year ahead
Economists surveyed predicted a return to normalcy by 2024 when inflation begins to dissipate, but the rest of this year will likely be a long road for the UK economy.
The brunt of the burden will likely fall on consumers as inflation rises while borrowing costs rise along with the Bank of England raising interest rates, according to the survey. Words used by economists to describe the consumer outlook for the coming year ranged from “terrible” to “miserable.”
Annual inflation in the UK was 10.7% last month, and like many countries, the UK central bank resorted to a series of interest rate hikes last year to push prices down.
the bank of england raised rates again at its last 2022 meeting in December, signaling it was prepared to “respond forcefully” with more hikes if inflation showed signs of persisting in 2023.
Economists surveyed by the FOOT He said inflation could remain uncomfortably high in the form of high energy prices this year due to aftershocks from the Ukrainian War.
Vladimir Putin has punished Western sanctions with severely limiting Europe’s access to Russian natural gas, that caused energy prices to skyrocket last year. Supply shortages have caused an energy crisis off the UK coast as the country depends on natural gas for 40% of its electricity generation and 84% of its heating, and unlike the EU it has a very limited gas storage capacity to resort in times of high energy demand.
The country’s inflation problem has been exacerbated by the reduction of its workforce, which in recent years has seen record numbers of workers leave, mainly due to long-term illnesses and mental health problems.
The number of workers who had withdrawn from the labor force due to illness increased by 500,000 between 2019 and November 2022, according to the Office for National Statistics.
The reduction in the workforce has also affected public services in the UK. The social workforce of the country fell by 50,000 people last year from pay disputes and illness, the first drop in a decade.
bad performances
High inflation and a shrinking workforce are expected to exacerbate a UK recession this year, but it’s not the first time the country’s economy has lagged behind its G7 peers.
During the early days of the pandemic in 2020, when much of the world entered a pronounced but short recessionthe UK economic contraction was the more serious among the G7. Economists linked the sharp slowdown to the UK’s late decision to impose lockdowns, contributing to the increased number of excess COVID-related deaths in Europe.
Since the pandemic, the economic recovery in the UK has also been slow compared to other wealthy nations.
The UK was the only G7 country last year with a smaller economy than it was before the pandemic, according to official ONS figures released in September, as high inflation and interest rates dealt a much bigger hit to economic growth than in other developed nations .
The FOOT The survey findings on the severity of the next UK recession add to a similar forecast last year from the OECD, an intergovernmental organization that encourages global trade and economic growth.
The UK is expected to experience the biggest economic contraction among wealthy nations due to the Ukraine War and the energy crisis, the agency predicted in its latest report. economic prospects posted in november.
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