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UK economy set to shrink but avoid official recession UK economy set to shrink but avoid official recession
(about 2 hours later)
The UK is expected to avoid a technical recession in 2023, Jeremy Hunt tells the Commons.The UK is expected to avoid a technical recession in 2023, Jeremy Hunt tells the Commons.
The UK is expected to avoid a technical recession in 2023, Jeremy Hunt tells the Commons.The UK is expected to avoid a technical recession in 2023, Jeremy Hunt tells the Commons.
The UK economy is set to shrink this year but avoid a technical recession, according to the government's independent forecaster. The UK economy is expected to shrink this year but narrowly avoid an official recession in a better-than-expected performance for the country.
The Office for Budget Responsibility (OBR) now expects the size of the economy to fall by 0.2% in 2023. Inflation - the rate at which prices rise - is also expected to more than halve this year dropping to 2.7%.
But it will escape the usual definition of a recession, which is two consecutive three-month periods of decline, Chancellor Jeremy Hunt said. However, even with the improved forecast for economic prospects, the government's forecaster warned of a big drop in living standards.
It came as he set out the government's growth plans in the Budget. Analysts warned that the UK was "not out of the woods yet".
The OBR also said inflation would more than halve to 2.9% by the end of 2023. Independent research group The Institute for Fiscal Studies said the economic picture hadn't changed "enormously since the autumn".
Inflation - the rate at which prices are rising - is currently in double digits, driven by soaring food and energy prices. "The Office for Budget Responsibility (OBR) expects the economy to grow a bit faster in the short-term, and a bit slower in the medium-term, combining to produce an economy 0.6% larger in real-terms in 2027-28 than under the autumn forecast," director Paul Johnson said.
In a growing economy, the value of the goods and services that the country produces - measured by gross domestic product (GDP) - increases each quarter. Chancellor Jeremy Hunt said the prediction from its forecaster was "proving the doubters wrong".
It is a sign that people are doing more work and, on average, getting a little bit richer. But Labour leader Sir Keir Starmer accused the government of being "out of touch" and putting the country "on a path of managed decline", saying it was "dressing up stagnation as stability".
But sometimes the level of GDP falls, and that is a sign that the economy is doing badly.
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The OBR said the economy was still likely to shrink this year, but by less than it previously thought. But while the UK will escape the usual definition of a recession, which is two consecutive three-month periods of decline, once inflation is taken into account incomes are expected to fall by 5.7% - the largest two-year fall since records began in the mid-1950s.
It now expects GDP to fall by 0.2% in 2023, having predicted a 1.4% drop six months ago.
The OBR also increased its growth forecast for 2024 to 1.8% from 1.3%.
However, it downgraded its forecast for the following three years to 2.5% in 2025, 2.1% in 2026 and 1.9% in 2027.
Mr Hunt said the economy was "proving the doubters wrong".
But Labour leader Sir Keir Starmer said the Budget was "dressing up stagnation as stability", adding that it put the country "on a path of managed decline".
He also said the chancellor's "boast" about bringing down inflation was "ridiculous", adding that it was the sacrifice of working people who are earning less and enjoying life less that was helping to bring inflation down.
Even with the improved forecast for economic prospects, the OBR is still warning of a big drop in living standards.
Once the impact of inflation is taken into account, incomes are expected to fall by 5.7% in total between 2022 and 2024. That is the largest two-year fall since records began in the mid-1950s.
The OBR warned living standards would not recover to pre-pandemic levels until at least 2027. The OBR warned living standards would not recover to pre-pandemic levels until at least 2027. 
How can we avoid a recession and still shrink?How can we avoid a recession and still shrink?
The chancellor has announced that the economy will avoid a "technical recession" this year, but that doesn't mean we're out of the woods.The chancellor has announced that the economy will avoid a "technical recession" this year, but that doesn't mean we're out of the woods.
The size of the economy - the value of everything we make and produce this year - is set to fall by about 0.2% according to the chancellor's figures.The size of the economy - the value of everything we make and produce this year - is set to fall by about 0.2% according to the chancellor's figures.
It becomes a "technical recession" if the economy shrinks for two seasons (three-month periods) in a row. So it's possible to avoid the technical definition even if the economy is doing badly if it shrinks in the spring and autumn but rises in the summer.It becomes a "technical recession" if the economy shrinks for two seasons (three-month periods) in a row. So it's possible to avoid the technical definition even if the economy is doing badly if it shrinks in the spring and autumn but rises in the summer.
A forecast of a 0.2% shrinkage may be better than we thought last autumn (shrinking by 1.4%) but it's hardly anyone's definition of doing well.A forecast of a 0.2% shrinkage may be better than we thought last autumn (shrinking by 1.4%) but it's hardly anyone's definition of doing well.
The chancellor also said the UK was on track to meet the government's self-imposed fiscal rules.The chancellor also said the UK was on track to meet the government's self-imposed fiscal rules.
"We are meeting our fiscal rule to have debt falling as a percentage of GDP by the fifth year of the forecast," Mr Hunt said. According to these rules, government debt must be falling as a percentage of economic output in five years' time and the budget deficit must be below 3% of gross domestic product over the same time period.
"At the Autumn Statement I also announced that public sector net borrowing must be below 3% of GDP over the same period," he continued.
"The OBR confirm today that we are meeting that rule with a buffer of £39.2bn. In fact our deficit falls in every single year of the forecast."
The OBR forecasts the deficit will fall from 5.1% of GDP in 2023-24 to 1.7% in 2027-28.
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