MNI BRIEF: NIESR Forecasts UK Recession, Bank Rate At 2.5%

Quarterly UK GDP growth will contract in the third and fourth quarters of this year, the National Institute of Economic and Social Research forecast, meeting the criteria for a technical recession. NIESR see the Bank of England's policy rate rising to a peak of 2.5%, in line with market pricing, but staying there.

NIESR's new forecasts show annual sub 1% growth, of 0.8% and 0.9%, in 2023 and 2024 respectively, with inflation peaking at 8.3% in the fourth quarter this year. The BOE's May forecast, based on market rates, showed inflation rising to 10% but then dropping back to well below the 2.0% target, suggesting market pricing for the policy rate to rise to 2.5% was overblown.

Stephen Millard, Deputy Director at the Institute, said that this may have been "wishful thinking" on the part of the Bank. NIESR, instead, sees the need for greater monetary tightening to get inflation back to target despite the minimal growth expected for the next three years and it called for fiscal policy to cushion the hit from rising prices to lower income households.