The UK economy will not experience a technical recession in 2023, while inflation is likely to fall, according to a new report from economic advisory company Teneo.
The UK narrowly avoided recession in 2022, when the country was still reeling from the impact of the previous government’s “mini budget,” which brought historically low consumer confidence down further.
Since then, consumer confidence has grown but still remains below the long-term average. Real wages have fallen across all income levels, and while high-income households remain the most protected, low-income households have been partially shielded by high wage growth.
Upper-middle-income households are likely to be those most severely impacted and, therefore, experience the greatest shifts in purchasing behaviours, according to the new Teneo report. There are several reasons for this.
One, they received limited support from the government, which has been more targeted towards lower-income households. Two, a significant proportion have exposure to mortgages, which have seen significant increases in payment terms due to rises in interest rates. Three, they typically work in positions and sectors that have seen the lowest wage increase (for example, the public sector) and are at the highest risk of redundancies (for example, digital).
Despite the negative outlook, 2023 presents an opportunity due to changes in consumer purchasing behaviours. “To be successful, brands must remain closely attuned to their existing customers’ needs, which we believe to be focused squarely on a renewed quest for value (not necessarily price) and a desire for personalised offers, flexible loyalty programmes and bundled offers,” Teneo’s report said.