(Bloomberg) -- One-in-four UK households will be unable to pay their energy and food bills despite the economy narrowly escaping a recession in 2023, a leading think tank predicted.

The National Institute of Economic and Social Research said the UK will avoid a contraction this year in stark contrast to gloomier Bank of England and International Monetary Fund projections.

However, its economists also laid bare the blow dealt by the cost-of-living crisis, warning that middle-income households have taken a hit to their disposable incomes of as much as £4,000 ($4,800) over the last year.

The slump in gas prices and markets being calmed by a return to orthodox fiscal policy have improved the economic outlook for the UK in recent months. But forecasters expect the UK to suffer one of the worst economic performances among advanced economies, with the IMF delivering a hefty downgrade to its growth projections last week.

NIESR predicted anemic growth of 0.2% this year before GDP rises 1% in 2024 and 1.6% in 2025. While the UK will escape a contraction in any quarter in 2023, NIESR warned it “will certainly feel like a recession” for millions of households.

It expects 7 million – or one in four – households will be unable to meet in full their energy and food bills from their incomes in the year starting April, an increase from one in five the previous year. While energy prices are falling, they remain much higher than before the war in Ukraine and government support is being reined in.

UK households are suffering a “permanent” reduction to living standards as wages fail to keep pace with double-digit inflation, the economists warned. NIESR does not expect inflation to reach the BOE’s 2% target until the second half of 2025.

Squeezed Middle

The middle classes are feeling the pinch most as the poorest receive extra government help. Middle-income households will face a hit to disposable income between 7% to 13%, a blow of as much as £4,000.

“What we’ve seen is that the shocks that have come along have progressively made us poorer per person,” said NIESR Director Jagjit Chadha.

“This malaise seems to be affecting large parts of the advanced world but on many measures the UK looks as though it’s towards the bottom of performance and I think that’s a great concern.”


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