MNI BRIEF: UK To Avoid 2023 Recession, Rate Peak Near - NIESR

The Bank of England's assumption that the UK will undergo a shallow, five quarter recession through 2023 is too pessimistic and it will instead show minimal growth, of 0.2% this calendar year, new National Institute of Economic and Social Research forecasts show..

NIESR sees easing market rate expectations, along with only a gentle rise in unemployment, as sufficient to keep the economy growing but it thinks the Bank faces a battle to get inflation back sustainably to its 2.0% target because of the stickiness of core inflation. NIESR assumed that the BOE hike in the policy rate to 4.0% at its February meeting took it close to peak but that the Monetary Policy Committee would then find little scope to reverse any of its tightening in the near-term, with the policy rate staying above 4.0% through into 2024.

The BOE last week highlighted weakness of UK supply growth, cutting its estimate of potential supply growth from 1.5% to 0.7% with the official fiscal forecaster, the Office for Budget Responsibility, set to revisit its assumption that potential supply is a little above 1.5% in the forecasts accompanying the upcoming March Budget. NIESR also highlighted the UK's supply side shortcomings, with business investment 20% below its pre-2016 Brexit vote trend.