We WILL avoid recession... but bounce-back is forecast to run out of steam

BRITAIN is ‘ proving the doubters wrong’ and will avoid recession this year according to Budget forecasts – but households still face a painful squeeze on living standards.

Chancellor Jeremy Hunt also hailed signs that the cost of living squeeze will loosen its grip over the coming months as inflation falls below 3 per cent.

The forecasts offer a brighter outlook than the doom-laden warning in November that the UK faced a recession lasting more than a year.

But they do little to lift the gloom for ordinary consumers.

The independent Office for Budget Responsibility till predicts Britain is heading for the biggest decline in living standards on record, which will further pummel consumer confidence.

Mr Hunt put a positive spin on the outlook compared with last November’s autumn statement, which was designed to steady the ship in the wake of predecessor Kwasi Kwarteng’s disastrous mini-Budget but delivered little cheer.

Today, Britain is still battling to bring down inflation from doubledigit levels – spurred by the war in Ukraine – and to revive growth.

But Mr Hunt said: ‘In the face of enormous challenges I report today on a British economy... proving the doubters wrong.’

The Chancellor pointed to forecasts showing that the OBR no longer expects GDP to shrink by 1.4 per cent this year.

And inflation is set to dip to 2.9 per cent by the end of 2023, partly thanks to the extra help being offered by Mr Hunt to keep energy bills down.

Yet Britain’s economy is still expected to shrink by 0.2 per cent this year. The OBR no longer thinks Britain is heading for a recession – defined as two quarters in a row of economic contraction.

But it is a narrow escape, with GDP predicted to shrink in the current first quarter of the year by 0.4 per cent of 2023 and flatline in the April-June period – partly held back by the impact of the extra Bank Holiday for the Coronation in May.

The growth outlook for 2024 was also upgraded, from 1.3 per cent to 1.8 per cent, and it will accelerate to 2.5 per cent in 2025, according to the OBR.

But it looks set to slow over the next few years, with weak business investment and productivity as well as the exodus of older people from the workforce continuing to drag.

Meanwhile unemployment – currently at 3.7 per cent – is expected to rise to 4.4 per cent. But that is lower than the previously predicted peak of 4.9 per cent, which means 170,000 fewer people losing jobs.

And the prospect for real terms household disposable income – spending power left to consumers after accounting for inflation – has improved compared with November but remains bleak. It is expected to fall by 5.7 per cent from April 2022 to March 2024.

Even five years from now, living standards will still be 0.4 per cent lower in real terms than pre-pandemic levels, the OBR said.

Richard Hughes, chairman of the forecaster, said the latest figures showed uncertainty surrounding Britain’s economic prospects.

He added: ‘We are still recovering from a once-in-a- century shock from the pandemic while facing an energy crisis on a scale not witnessed in half a century.’