By David Milliken
LONDON, Feb 8 (Reuters) - Britain will dodge recession
this year but its people will face the after-effects of a severe
fall in living standards caused by surging inflation, which will
leave millions struggling to pay their bills, academic
researchers forecast on Wednesday.
Britain's National Institute for Economic and Social
Research (NIESR) cut its forecast for gross domestic product
growth this year to 0.2% from 0.7% in its last forecast in
November, and sees growth of 1.0% in 2024, down from 1.7%.
NIESR Director Jagjit Chadha said the forecasts painted "an
incredibly depressing picture", particularly for living
standards which are set to stagnate this year after falling
sharply last year due to the surge in energy prices.
One in four British households would be unable to pay for
food and energy without using up savings, borrowing or seeking
other help in the 2023/24 financial year, up from one in five
during the current year, NIESR said.
Prime Minister Rishi Sunak has said one of his top goals is
to ensure inflation halves this year - as had already been
forecast by the Bank of England (BoE) - and the country is in
the middle of a wave of strikes as workers seek higher pay.
Overall, most Britons needed to accept that their incomes
had fallen in real terms and could not be easily made up by
higher pay, Chadha said - echoing a message from the Bank of
England last week when it raised interest rates to a 14-year
high of 4% to tackle inflation that is still above 10%.
The poorest 10% of Britons had seen little drop in income -
thanks to welfare benefits rising in line with inflation - but
middle income households faced a fall in real income of up to
13% or 4,000 pounds ($4,800) during the year to the end of March
2023, NIESR said.
NIESR's growth forecasts are somewhat more upbeat than those
of the BoE and the International Monetary Fund (IMF), which both
forecast last week that Britain's economy would shrink in 2023.
However, the think tank also sees significantly more
persistent inflation pressures, as core inflation - which
excludes energy and food prices - looks sticky, while the impact
of higher interest rates takes time to feed through.
Leaza McSorley, senior research manager at NIESR, said there
was little sign of businesses reducing prices, even after big
falls in costs such as shipping, which soared during the
pandemic.
NIESR predicts consumer price inflation will take until late
2025 to return to its 2% target, and to average 8.3% this year
and 4.2% in 2024 - more than double the BoE's forecasts.
($1 = 0.8332 pounds)
(Reporting by David Milliken
Editing by Mark Potter)
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