The improvement is attributed to better-than-expected GDP in Q4 2022 and the expected rapid easing of inflationary pressures. Inflation is likely to recede, allowing the Bank of England to begin cutting interest rates at the turn of 2023 and 2024, leading to cheaper energy and new investment incentives.

Growth is forecast to reach 1.9% in 2024 and 2.3% in 2025. Inflation is expected to drop to just under 3% by the end of 2023, easing pressure on households and businesses.

The EY ITEM Club forecasts wage growth to slow to 4.2% in 2023 and start to outpace inflation from summer onwards. The Bank of England may raise interest rates to 4.5% in May before cutting rates at the end of 2023.

Consumer spending is forecast to fall by 0.3% in 2023, with a rise of 1.8% in 2024 and 2.4% in 2025. Unemployment is expected to peak at just over 4% due to the improved GDP outlook and continued recruitment difficulties in some sectors.

Business investment is predicted to fall by 0.3% in 2023 before increasing by 2.3% in 2024, as investment incentives take effect.