In its latest PwC Economic Outlook report, it revealed that inflation could peak at a five-decade high of 17 per cent by the middle of 2023, based on market implied paths of energy prices in early September, but could peak at 10–13 per cent if energy bills are frozen.
And the current conditions mean that UK economy could miss out on potential £71.6 billion annual output growth through regional productivity imbalances.
Although the UK economy will continue to grow at a rate of between 3.1 per cent and 3.6 per cent in 2022 (compared to a COVID-impacted 2021) PwC has now forecast that the UK is likely to enter a recession as early as this year, followed by a period of negligible or negative growth through 2023 and 2024.
The outlook projects that peak inflation could range from 13 per cent to 22 per cent in 2023, with average annual energy bills ranging from £3,400 and £6,900, depending on the outlook for volatile energy prices and the size and form of anticipated government intervention.
Assuming no government intervention directly targeting domestic energy prices and assuming natural gas prices follow their market-implied paths as at the beginning of September, headline inflation could peak at 17 per cent in the first half of 2023. If the government chooses to freeze energy bills, however, inflation could peak at 10–13 per cent.
Nick Forrest, UK economics consulting Leader at PwC said it is now likely that the UK will enter recession this year, although the path of natural gas prices and degree of government support will influence the potential size and scale of a downturn.
“Businesses and consumers could face two ominous milestones in the months ahead: a potential five-decade high in the inflation rate, and the largest fall in real wages since records began. We are already seeing a deteriorating outlook for consumer sentiment and business expenditure,” he said.
“Yet many uncertainties remain around the future of global energy supply, as well as the scale and form of government support measures, which will determine the inflationary and growth outlook ahead.
“Inflation forecasts have changed rapidly in recent weeks, driven predominantly by the market price of natural gas. Until gas markets regain stability the outlook for inflation will continue to be hard to predict. This will be a challenging environment for businesses to plan, mitigate and adapt.
“Nonetheless, there are profound social and economic challenges ahead for businesses and individuals. We can therefore expect a renewed focus on areas to boost productivity across the UK and deliver substantial economic growth in the long-term.”
