The United Kingdom is expected to enter a severe recession this year as inflation and an energy crisis cause a major economic contraction.
In a new report, U.S. investment bank Goldman Sachs (GS) forecasts that the U.K. recession in 2023 will be almost as deep as that of Russia, which has been hit with numerous economic sanctions following its invasion of Ukraine.
Specifically, Goldman Sachs forecast a 1.2% contraction in U.K. real GDP over the course of this year, well below all other Group of Ten (G10) economies. This is expected to be followed by a 0.9% expansion in 2024, according to the bank.
England’s economic performance is expected to be only fractionally ahead of Russia, which Goldman Sachs projects will see a 1.3% economic contraction in 2023, followed by 1.8% growth in 2024.
The Wall Street investment bank also forecasts U.S. expansions of 1% in 2023 and 1.6% in 2024.
The Organisation for Economic Co-operation and Development (OECD) has also forecast that the U.K. economy will lag significantly behind other developed nations in the coming year.
The U.K. Office for Budget Responsibility projects that the country will endure its sharpest decline in living standards on record, forecasting that real household disposable income will drop by 4.3% in 2023.
The Bank of England raised interest rates by 50 basis points to 3.50% in December as it tries to reign in inflation that is running at a 40-year high in the U.K.
The U.K. also faces unique domestic obstacles such as a severely tight labour market and heavily depleted trade following the country’s withdrawal from the European Union, known as “Brexit.”
