Early election dilemma for Rishi Sunak as economists warn of recession

Recession more likely than not by end of 2024 when Tories will have to go to country

Rishi Sunak’s dilemma over whether to call an early election has deepened after economists warned the UK is likely to be plunged into recession at the end of next year.

A report by the National Institute for Economic and Social Research (Niesr) published on Wednesday warned there was “a roughly 60 per cent risk of a recession at the end of 2024”.

The prediction means the economy could take another hit just as the prime minister plans to go to the country.

Under election rules, the next contest has to be called no later than January 2025.

Niesr’s modelling is likely to give weight to senior Tory voices calling for Mr Sunak to go to the polls earlier – perhaps in May next year when local elections are to be held.

Senior Tory Lord Finkelstein last month warned that it would be a mistake for the Conservatives “to think that a bad moment can’t become worse” and said an early election was the best shot to “minimise” losses.

The Tories have trailed Labour in the polls by around 20 points since Liz Truss’s disastrous mini-budget caused chaos on financial markets.

But some Tories think their prospects could improve if they wait to hold an election because cost of living pressures like inflation and energy prices could subside.

Niesr’s report also warns that the UK faces “stuttering growth” over the next two years amid pressure from higher interest rates and increased unemployment.

The institute’s main forecast expects the UK to avoid a recession in 2023. It says the gross domestic product (GDP) is “projected to grow barely by 0.4 per cent this year and by 0.3 per cent in 2024”, though it adds that the outlook is highly uncertain.

Inflation is also expected to remain “continually above target” until 2025, though it is predicted to fall to 5.2 per cent by the end of 2023 and to 3.9 per cent by the end of 2024.

Professor Stephen Millard, deputy director for Macroeconomic Modelling and Forecasting, said: “The triple supply shocks of Brexit, Covid and the Russian invasion of Ukraine, together with the monetary tightening that has been necessary to bring inflation down, have badly affected the UK economy.”

“As a result, we expect stuttering growth over the next two years and GDP to only recover to its 2019 Q4 level in 2024 Q3. The need to address the UK’s poor growth performance remains the key challenge facing policy makers as we approach the next election.”

Professor Adrian Pabst, deputy director for Public Policy, said: “The aggregate shocks to the UK economy have widened disparities of income and wealth across the household distribution and between prosperous and poor parts of the country.

“Falling real wages, combined with persistent inflation, are hitting the low-income households hardest, leading to lower real disposable incomes by about 17 per cent in 2024 compared with 2019.

“The increasing inequalities facing poorer families are reflected in slower wage growth and fast-rising unsecured debt. For some of the poorest in society, coping with low or no real wage growth and persistent inflation has involved new debt to pay for permanently higher housing, energy and food cost.”