KPMG boosts UK growth forecasts but risks remain

The UK will narrowly avoid recession, a report predicted on Monday, but growth will be weak with risks still heavily skewered to the downside.

According to KPMG’s latest UK economic update, falling energy prices and an improved outlook for the global economy mean the country will now likely avoid recession. A tight labour market has also helped contain unemployment.

KPMG is therefore now forecasting GDP to grow by 0.3% this year and by 1.1% in 2024.

However, it acknowledged that growth was "weak" by historical standards and warned that downside risks remained. They include stubborn inflation - currently at 8.7% - turbulence in the global banking system and the "uncertain" impact of higher interest rates on the economy.

The Bank of England has raised the cost of borrowing 12 times since December 2022. It now stands at 4.5%, but KPMG is forecasting three further rises this year, to a peak of 5.25%.

It expects inflation to ease further, to 7.7%, before reaching 2.9% in 2024, although that would still above the BoE’s 2% target.

Yael Selfin, KPMG UK chief economist, said: "We’ve seen a slightly strong momentum for the UK economy but risks are still elevated on the downside. A stickier inflation will see monetary policy tightening even further, increasing the risk of unwelcome side effects among other potential headwinds."

The forecast mirrors a report from the Confederation of British Industry, also published on Monday. While it is no longer forecasting a recession, the trade body warned that risks to its inflation predictions remained "very much to the upside".

Victoria Scholar, head of investment at Interactive Investor, says: "The UK economy is not out of the woods yet, but the direst forecasts continue to be would back.

"The economy is still struggling with above-target inflation, rising interest rates, negatives real wages and sluggish growth domestically and among key trading partners. However, with inflation finally dropping back to single digits, China’s lockdown restrictions being removed, energy prices cooling and some light at the end of the monetary policy tightening tunnel, there are reasons to be cautiously optimistic."