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A gloomy analysis has forecast that the economy will remain stagnant for six months – experiencing no growth during the second and third quarters of this year.

The EY Item Club forecasting team also cautioned that an energy price ‘shock’ is likely to soon driveinflationnearly 4 percent, while unemployment is expected to reach 5.8 percent by mid-2027.

This would result in an additional 250,000 individuals losing their jobs – the highest number since 2014 and more severe than the situation during the pandemic.

The report offers bleak news for the Prime Minister and ChancellorRachel Reevesafter the International Monetary Fund (IMF) last week cautioned that Britain will face a more severe impact from theIranmore war than any other major developed economy.

Matt Swannell, the chief economic advisor for the Item Club, stated: ‘Rising energy expenses and interruptions in supply chains willdrive the UK to the edge of a technical recession during the middle of this year.

Consumers’ ability to spend will be reduced, and pricier financial options along with an uncertain global economic environment will dampen companies’ investment strategies.” He cautioned that the recent surge in energy costs and supply chain disruptions “will be the most significant shock to the job market since the pandemic.

He also said, “It’s unavoidable that inflation will increase this year. Household utility and gasoline expenses will rise sharply, and companies will raise prices as their costs go up.”

Recent official data from last week indicated that the economy was in a more favorable condition than initially anticipated prior to the conflict – with production increasing unexpectedly by 0.5 percent in February.

However, the Item Club report stated that ‘ongoing data problems’ led to the numbers being ‘exaggerated,’ and that the UK is expected to ‘approach a recession during the middle of the year.’

It predicted a growth of only 0.7 percent throughout 2026, followed by a 0.9 percent increase in 2027, which was described as still below average.

That is even more dismal than the IMF’s forecast. Last week itreduced its UK growth prediction for this year by 0.5 percentage points to 0.8 percent. This was the

greatest decline among the G7 countries, with the US, Canada, Germany, France, Italy, and Japan all regarded as better equipped to handle the energy crisis.

The IMF also reduced its prediction for 2027 by 0.2 percentage points, settling at 1.3 percent.

However, this is a positive development for millions of borrowers, as the Item Club believes the Bank of England will hold off on increasing interest rates this year, even with significantly higher inflation. “We don’t anticipate the Bank of England repeating its 2022 approach by raising interest rates as energy costs go up,” said Mr. Swannell.

A more unstable economy implies that companies will struggle to transfer increased expenses to customers.

Alternatively, the Bank can remain unchanged while it waits for inflation to decrease before reducing interest rates a few more times during the middle of next year.

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