The UK's Economic Outlook for 2023

Currently, the UK economy is living through tough times. The British Chamber of Commerce (BCC) predicts that the UK economy will remain in recession for at least five quarters but is likely to recover in 2024. The cost-of-living crisis is putting pressure on both households and businesses, which causes massive discontent. There are a lot of tax changes and freezes that will eventually affect everyone.

Inflation is at its highest level in the last four decades; it is rising monthly along with interest rates but, according to experts, it has peaked at 11%. As forecasted by the Bank of England, the annual expectation of GDP growth in 2023 is now -1.3%. The EY ITEM Club says that the UK economy is expected to be in crisis until summer 2023.

In a November Statement, when the government informed parliament of its future financial plans, the Chancellor finally confirmed that the UK was in recession. Earlier this autumn, there were loud speculations regarding the economic downturn in the news and mass media, but the official statement appeared only recently. The confirmation was not expected until 2023. With great uncertainty and confusing information about the state of the recession in the UK, it is not surprising that many people are trying to find clear data.

What Is a Recession?

A recession is a significant and prolonged decline in economic activity. During a recession, economic output, employment, and consumer spending fall. A downturn is called a recession when it lasts more than a few months: the economy must have at least two consecutive quarters of falling outputs.

UK Recession in Figures

As for the UK, the economy contracted in the 3rd quarter of the year; however, revised data for the previous quarter showed a slight 0.2% increase from April to June. Citing data from the Office for Budget Responsibility (OBR), the Chancellor confirmed that the UK is currently in recession. The OBR stated that a reduction in real incomes, rising interest rates and falling house prices are all putting pressure on consumption and investment, which was pushing the economy into a recession from the beginning of the third quarter of 2022.

The historic cost-of-living crisis has been slightly reduced by the government's intervention on energy bills, but its main cause, namely, a reduction in real incomes, is still actual. Policymakers struggle to cope with double-digit inflation, and we can see real changes; for example, the central bank introduced the biggest 1989.

The UK economy is also under pressure from the incomplete recovery of the labour market after the Covid-19 pandemic and the long-term consequences of the country's exit from the European Union. This resulted in a decline in business investments. The CBI said these factors reduce productivity and cloud the long-term prospects of the UK economy.

What May Happen in a Recession?

The possible impact of an economic recession is quite predictable. Being a stage of an economic cycle, it proved to be a hard time for everyone, with no exceptions. Let's learn the common outcomes.

Recessions tend to be accompanied by significant job losses, and we've started to see this in some industries like technology, with Meta, Twitter and recently Amazon cutting headcount and focusing on slashing capacity and lowering costs.

There has been some weakening of labour markets over the past few months, but this is not at the levels seen during previous major downturns, such as the 2008 financial crisis. According to the latest official data for the three months (to September), unemployment was 3.6%, slightly up from 3.5% in the summer. Still, these are the lowest figures since 1974.

The UK may not necessarily go through the large-scale job cuts and layoffs that were seen in the past, but households and businesses are likely to face additional strain because of salary inflation. In real monetary terms, wages are not keeping up with inflation, and they may also decline slightly next year compared to this year.

When Will the UK's Recession End? The UK Economic Outlook

• The BCC predicts that the economy will return to growth in Q4 2023, unlike the Bank of England, whose forecasts are not at all comforting.
• Inflation in the UK is expected to slow down to 5% by next year.
• The economy is supposed to grow in 2024, but the recovery is estimated to be weak because business investment, exports and household consumption remain low.

Investment and Recovery Are Expected to Be Anaemic

Analysts state that there will be a slow and weak recovery next year. Here are some predictions for the future state of the UK economy:

• A recent BCC survey showed a significant drop in business confidence over the past few months.
• In 2023, investment is expected to decline by 1.8% overall. Business investment is expected to decline further by 3.0% in 2023, which is considerably below the previous forecast of an increase of 0.6%.
• Household consumption is also expected to decline by 2.3%, although government spending is expected to increase by 4.6%.

2024 is predicted to show a slow return to growth, but not at a level that compensates for five quarters of economic contraction. Household spending, net exports, and business investment will rise, but with a reduction in government spending, the recovery will be weak.

UK Fintech Investment

Britain is a favourable place for technology-related business. The evidence of this is reflected in the governmental regulatory framework, for example, investor-friendly policies and tax benefits. Moreover, the sizable consumer market open to new products has a positive effect on the industry and fintech adoption rates. Currently, the UK has a thriving ecosystem with . Most of them are located in London, so the capital ranks second in the world after the United States.

The main driving force of the fintech system is the high level of investment in the industry. According to Innovate Finance, UK investments in 2021 amounted to $11.6 billion, accounting for about half of all European investments. According to City of London Corporation research, fintech firms have now become the main source of in financial services: they make up one-third of all investment projects. This clearly indicates that the UK is an attractive and leading centre of innovation in financial services.

The inflation of 2022 has lowered overall financial confidence, but consumers claim that fintech is helping them survive the economic downturn. Consumers use savings accounts and personal investment apps to reach their short-term and long-term goals, along with various payment and money management tools that help ensure stability.

The development of fintech services software and the adoption of innovations are expected to have a major impact in 2023. Fintech is proving to be a solution of the future, especially with the largest group of digital technology adherents — Generation Z and millennials. It is obvious that fintech has helped consumers during the last three years of global challenges. Customers state that the further path for this industry will be the development that provides people with stability, flexibility, and new opportunities.