The British Chambers of Commerce (BCC) have released on their website their economic forecast for 2023. It does not paint a good picture for the UK economy for the coming year.
Against the backdrop of the conflict in Ukraine and the resulting increase in electricity and gas bills for homes and companies in the UK; the friction in international trade caused by Brexit; the shortage of workers in such sectors as agriculture and logistics; the fall in the value of the pound; and the increasing burden of servicing a swollen national debt it is not surprising that economists are already earmarking 2023 for recession.
Here are the headline figures for the UK economy for 2023
- The British Chambers of Commerce forecast that the UK will remain in recession until the last quarter of 2023;
- UK inflation will remain stubbornly high until Q4 2023 when it is expected to fall to 5%; and
- The UK economy will make a weak recovery in 2024, with exports, household consumption and business investment remaining subdued.
The BCC is forecasting 5 quarters of recession. The starting point was Q4 2022. The BCC agrees with the Office for Budget Responsibility (OBR) and the Bank of England that UK GDP will retract by -1.3% in 2023.
Whereas the OBR and Bank of England predict the economy will grow by 0.5% by the end of Q4 2023, the BCC is a little more optimistic in predicting very modest growth of 0.7%.
A sharp fall in household spending, falling real wages, frozen income tax allowances and higher mortgage payments partly explain these predictions for poor economic growth.
The weak pound might improve exports if it wasn’t for the rising costs for raw materials and parts. The UK economy has shifted in the last two decades to the service economy. This means imports are essential; however, they too will decline as households cut back on unnecessary expenditure.
Business investment will remain sluggish – not helped by budget increases in Corporation Tax. Moreover 2023 is the year marked for changing business rates. Previously they were taken from 2015 property prices. In 2023 this rate will change based on property prices for 2021. That will be a shock for many SMEs.
It looks like inflation peaked in Q4 2022 at 11%. The rampant inflation at the end of 2022 was partly deflated by the government intervention to cap energy prices for households.
The Consumer Price Index (CPI) is expected to slow to 5% by the end of Q4 2023, and finally fall back in line with Bank of England targets of 1.5% by Q4 2024.
This tentative hopeful outlook has to be tempered by the fact that prices will remain high (rather than falling) for consumer goods, raw materials and energy, and thus worker demands for pay rises will continue to be a driver for inflation. This will be exacerbated by the government’s promise to reduce assistance with energy bills in April 2023.
Overall investment is predicted to fall by 1.8% in 2023 with business investment expected to fall by 3%. While government spending is likely to rise to 4.6% in 2023, household consumption is expected to drop by 2.3%. These figures alone mark 2023 as a bleak year for the UK’s economy. Even the expected upturn in 2024 will not compensate for the 5 consecutive quarters of recession.
It is not easy to say for certain how factoring companies will fare in 2023. They did surprisingly well in 2022 despite supply side shortages, rocketing energy prices and geopolitical uncertainty created by Russia’s invasion of Ukraine.
Credit controls, due diligence and reserves will all need to be expertly managed to ensure the factoring sector continues to grow in 2023.
It is clear that 2023 will be a difficult year for businesses and households alike. While inflation might come down, prices will remain stubbornly high. GDP will go down until Q4 2023 when the economy will nudge into the black with a rise of 0.1%.
Recent government budgets have not reassured businesses. They are reluctant to invest until the government announces spending on training and infrastructure and green jobs. Bizarre and disparate ‘levelling up’ promises by the government are not instilling confidence in business leaders to invest.
There must be a general election either in 2023 or early 2024. A change of government could quickly improve business confidence. However, I will not linger over my crystal ball, as giving false hope is cruel.