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The UK economy could be in worse trouble than we thought

World Economic Forum Managing Director on State of the Economy in 2023

Feeling optimistic about the economy? Perhaps you shouldn't. Analysts reckon the recession heading for the UK could be twice as bad as previously thought, according.

Business consultancy EY predicted a 0.3 per cent contraction in gross domestic product (GDP) this year, followed by 2.4 per cent growth next year and a 2.3 per cent rise in 2025.

But now they reckon GDP will drop 0.7 per cent this year, followed by growth of 1.9 per cent and 2.2 per cent over the next two years.

“The UK’s economic outlook has become gloomier than forecast in the autumn, and the UK may already be in what has been one of the mostly widely anticipated recessions in living memory,” said EY’s UK chair, Hywel Ball.

Ball said that while the recession could cut deeper than previously thought, it would not necessarily last longer than earlier forecasts noted.

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EY added the recession would probably also prove less damaging for the economy than the recessions of the 1980s, 1990s and 2000s.

“The one silver lining is that, despite being a deeper recession than previously forecast, it won’t necessarily be a longer one,” Ball said.

“The economy is still expected to return to growth during the second half of 2023 and has been spared any significant new external shocks in the last three months from energy prices, Covid-19 or geopolitics. Meanwhile, the chief headwind to activity over the last year – high and rising inflation – may be starting to retreat, while energy prices are falling too.”

All doom and no gloom? Maybe not. The World Economic Forum in Davos suggested the global outlook was not quite as bad as first feared. And in recent weeks the FTSE 100 has neared its highest level ever.

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