Chambers Wales South East, South West and Mid and the British Chambers of Commerce (BCC) are forecasting that the UK will return to growth in 2024 following a prolonged recession.
Despite the latest GDP figures from the Office of National Statistics (ONS) showing growth of 0.5% for October, the BCC’s quarterly economic forecast expects the economy to be in recession for five consecutive quarters.
A key contributor to the economic contraction is a sharp fall in household spending as consumers face rising energy costs, falling real wages, frozen income tax allowances and higher mortgage payments.
A poor outlook for the global economy means exports are also likely to fall, although they will be outstripped by a sharper decline in imports.
Businesses and consumers will continue to face high costs due to inflation, but the upward spiral is now thought to have peaked at 11% for Q4 2022, thanks in part to the government’s energy price guarantee.
Although the impact of energy and raw material costs on inflation is likely to reduce in 2023, there remains a likelihood of upward wage pressure as workers seek to increase their income.
The overall picture for 2023 shows a return to growth but not at a level which will compensate for the five quarters of a shrinking economy. Net exports, household spending and business investment will all return to positive growth but with government spending dropping, the recovery will be lacking in strength.
Paul Slevin, Executive Chair of Chambers Wales South East, South West and Mid, said: “This forecast is a mixed bag for businesses. On the one hand, a recession and slow return to growth for businesses who are already under pressure with regards to utility, raw materials and labour costs will be disheartening and fuel a further drop in business confidence.
“On the other, the news that inflation appears to have peaked will be welcomed. In Q4, three quarters of businesses in Wales stated that inflation was more of a concern now compared to the previous quarter. With inflation rates expected to now drop over the course of the next year, the cost of doing business will become slightly easier.”
Alex Veitch, Director of Policy at the British Chambers of Commerce, said: “The very real worry is that the UK will get left behind by our competitors, once the economy emerges from recession, as growth remains so weak.
“But it is not too late to turn this around. With concrete action on infrastructure investment, skills, trade, and green tech we can put the economy in a much stronger position.
“The next Budget, due in March 2023 will be a real acid test of whether the Government fully understands the scale of the problems ahead and is prepared to act.
“In the meantime, the forthcoming announcement on energy bill support for businesses will be watched closely by firms for signs that the Government grasps the size of the challenges they face.”