The consensus was too gloomy on the UK’s economic prospects entering 2023, but one investment bank now accuses economists of being too dismissive on the prospects of a recession in the UK later this year.

Deutsche Bank has downgraded its growth forecasts for the UK, while underlining concerns about inflation and recession risks, due to various factors, which include higher interest rates, persistent inflation, a global growth slowdown, and delayed monetary policy tightening.

“We expect UK growth to just about remain in positive territory this year, expanding by a meagre 0.3%,” said Sanjay Raja, senior European economist at Deutsche Bank. “But higher rates, inflation persistence, a global growth slowdown, and lags in monetary policy tightening will likely drag growth down over the next two years.”

Deutsche Bank has adjusted its growth projections for 2024 and 2025, now expecting growth rates of 0.4% and 1.1%, respectively, down from the previous estimates.

With regards to inflation, Raja anticipates that CPI will land at around 5% year-on-year in 2023, with a slow descent to the target rate of 2% by late 2024, and the base rate rising to 5.25% in Q3 this year.