This is the longest period of ‘lost growth’ since the aftermath of the global financial crisis, according to the National Institute of Economic and Social Research (NIESR).

While the UK has managed to escape recession, it noted that UK GDP in Q1 2023 is currently 0.5% below the level of GDP before the pandemic.

Its forecast does not have it passing this level until the third quarter of 2024, and there’s even a chance of GDP growth contracting by the end of this year.

Further, NIESR suggested there’s “roughly” a 60% risk of a recession at the end of 2024.

Outlook on inflation and interest rates

As part of its latest quarterly outlook, it forecasts inflation to remain continually above its 2% target until 2025.

But the rate of inflation is expected to decrease to 5.2% this year and to 3.9% by the end of 2024.

However, the report authors added: “Nevertheless, with core inflation at 6.9%, and other underlying inflation measures remaining high, we see significant risks to our inflation forecast, which could result in inflation being higher than anticipated.”

NIESR added it expects to see one further 25 basis point rise to the Bank of England base rate to peak at 5.5% which should be enough to help get inflation back to target.

Low income families hit the hardest

Families on low incomes will be impacted the most as a result of the economic environment, with NIESR believing this will lead to lower real disposable incomes by about 17% in 2024 compared with 2019.

Its projections for the all-important General Election year of 2024 also suggest inequalities of income and assets will grow as there will be little real income growth for many as housing, energy and food prices remain elevated.

Further, real wages in many UK regions are set to be below pre-pandemic levels by the end of 2024, including the East of England, South-East and West Midlands.

Elsewhere, the unemployment rate could reach 4.7% in 2024 and peak at 5.1% by 2026 (currently 4% in the three months to May).

‘Stuttering growth’

Professor Stephen Millard, deputy director for macroeconomic modelling and forecasting at NIESR, said: “The triple supply shocks of Brexit, Covid and the Russian invasion of Ukraine, together with the monetary tightening that has been necessary to bring inflation down, have badly affected the UK economy.

“As a result, we expect stuttering growth over the next two years and GDP to only recover to its 2019 Q4 level in 2024 Q3.

“The need to address the UK’s poor growth performance remains the key challenge facing policy makers as we approach the next election.”