Costly yes, but move could ward off a recession, say economists

A RECESSION could be averted after the Government’s energy bill freeze eased financial pressure on households, an economic forecaster said last night.

The EY ITEM Club said the £100 billion-plus move would also take the heat out of inflation in the months ahead.

Britain’s cost of living squeeze had looked on course to deepen until Prime Minister Liz Truss announced the huge support package yesterday.

The Bank of England has predicted economic growth going into reverse for an extended period beginning at the end of this year.

But EY ITEM Club said the ‘generous’ government plan ‘should significantly reduce the risk of the economy entering a recession’.

It also said the freeze on energy prices would mean inflation, currently at 10.1 per cent, would peak at 11 per cent in October. Without the help, inflation would have hit 15 per cent at that time, it added.

Martin Beck, chief economic adviser to the EY ITEM Club, said the package came at a ‘significant’ cost – but that doing nothing carried its own risks. ‘Were households to have been exposed to energy bills in the £5,000-plus range, the consequence may well have been a decline in discretionary spending and a significant downturn in the economy,’ he said.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: ‘A recession over the coming quarters no longer looks likely, following the new PM’s energy price announcement.’

Paul Dales, of Capital Economics, took a less rosy view – saying the policy was unlikely to prevent a recession but the scale of the decline in GDP was likely to be halved from 1 per cent to 0.5 per cent.