A leading economist has told businesses in Warwickshire that the UK is likely to enter a recession in 2023 – but warned against any rash reactions.
Jeremy Lawson, Chief Economist and Head of the abrdn Research Institute, said to expect 12 months of “difficult markets” as the economy shrinks.
Speaking at an Annual Insolvency Conference hosted by Leamington law firm Wright Hassall, he said markets will get worse before they improve, but warned businesses to “avoid any foolish short-term decisions”.
Chancellor Jeremy Hunt has said the latest growth forecast from the Office for Budget Responsibility (OBR) forecasts the UK economy to decline by 1.4 per cent in 2023 - deeper than the 1.8 per cent predicted earlier in March.
Lawson said: “The likelihood is the world is going to go into another recession in 2023.
“The trough doesn’t usually occur until you are in the recession, that means we probably have another 12 months or so of really difficult markets ahead.
“The most sensible thing anybody can do is think about the long-term, markets will go down before they go up but they will go up.
“What I would say to anybody is to avoid any foolish short-term decisions. It is fiendishly difficult for businesses to invest in a way that beats the market when you are on the cusp of a recession.”
The UK's economy remains under strain with rising energy prices, inflation at a 41-year high of 11.1 per cent, and political and financial market volatility caused by the mini budget set out by Liz Truss and Kwasi Kwarteng.
Hunt undid much of the tax-cutting mini-budget in his Autumn Statement with tax rises and a spending squeeze, which Lawson said should offer some comfort – although more needs to be done long-term.
He added: “I think the pledge to reverse most of the Truss-Kwarteng policies and be a little bit more sensible with that short-term fiscal policy means the size of the recession is not going to be as deep as it would have been.
“It is equally true there is really nothing in the Hunt budget that does much to lift the UK’s dismal long-term productivity performance and it still needs to be addressed.
“The really big story is the serial underperformance, for largely structural reasons, that no Government over the last 12 years has dealt with.
“Spending on schools in real terms is far less than 2010, the NHS is drastically underfunded.
“When you are running such a lean system, the vulnerability heading into the pandemic was enormous as a lot of resources had to be diverted.”
The conference was hosted by Wright Hassall's insolvency team, who advise on formal insolvency proceedings, restructuring, turnaround and refinancing.
Caroline Benfield, Partner and Head of Insolvency at Wright Hassall, added: “Our Annual Insolvency Conference was another huge success this year and we would like to thank all of our guest speakers for helping us to put together such an informative and relevant programme.
“It is predicted that the next 12 months or so are going to be difficult for businesses in a variety of sectors, such that it will remain ever important for businesses and directors to take advice at an early stage if financial difficulties are being experienced.
“Please do not hesitate to contact one of our experts in our insolvency and restructuring team if you should require advice in this area.”