The UK is reportedly set to avoid a recession this year, mainly due to wage growth outpacing price inflation.
The EY Item Club (which sounds like a pretty strange name for a club, if you ask us) has predicted that economic output growth will hit 0.6%, rather than the 0.4% it forecast back in July this year.
Energy and food prices have also fallen, and it is thought that inflation will hit around 4.5% by the end of 2023.
This cooling of inflation and growth in wages should lift household spending, according to the Item Club.
This comes as the ONS has updated its historical GDP data to show that the economy had expanded by 1.8% since the start of the Covid-19 pandemic (that’s a £1 in the newsroom swear jar for me), faster than Germany and France.
Business investment has also been more robust, and is forecast to grow at 5.9% this year, the highest rate since the heady days of 2016, and a whole lot better than the 1.4% forecast by EY in July.
Martin Beck, chief economic adviser to EY Item Club, said: “While recent industry surveys have been fairly gloomy about the UK economy, there have been enough positive developments, including upwards revisions to past data, to lift the mood music and reduce the danger of recession becoming a self-fulfilling prophecy.”
Clearly in a chipper mood, EY have also said that there is less chance of a more serious correction in the housing market. Lenders are apparently more likely to allow borrowers to postpone mortgage payments rather than taking repossession action, and the ratio between average house prices and incomes has declined.