A think tank believes the UK will avoid tipping into recession this year but a greater number of homes – one-in-four – will struggle to pay rising bills.

The National Institute of Economic and Social Research now says the squeeze on incomes from the energy-driven cost of living crisis and lower government support would combine in 2023 to make it “feel like a recession”.

However, it says Britain’s economy is set to squeeze out 0.2% of GDP growth in 2023, meaning it will swerve a technical reversal – two consecutive quarters of contraction.

The NIESR’s more optimistic projections were driven by expectations that household spending will hold up.

The independent body’s headline numbers for economic growth were far more rosy than recent forecasts by the Bank of England and the International Monetary Fund.

The latter released a report just over a week ago that predicted the UK would be the worst-performing developed economy in 2023, with output falling 0.6%.

Figures due from the Office for National Statistics this Friday are expected to show the economy narrowly avoided a recession at the end of last year after December GDP contracted 0.3%, likely making quarterly growth flat.

Research from the Fraser of Allander Institute shows the Scottish economy is unlikely to return to growth until the end of this year.

The institute now expect a contraction in output to last until September with an exit from recession in the final quarter.

The latest quarterly forecast, published today, is slightly gloomier compared to its previous update in October when it had forecast a 0.6% contraction in 2023 followed by growth of 0.8% in 2024.

The institute now expects the economy to contract by 1% across 2023 before a return to growth of 0.6%, in 2024. It said persistently high inflation, depressed consumer confidence and skills shortages were factors in the tougher outlook.

Professor Mairi Spowage, director of the institute, said: “This means that the economy will be smaller at the end of 2023 than at the start of the year.

“More positively, we agree with many other forecasters that there is likely to be growth in the economy towards the end of the year as inflation comes down. However, we need to remember that this only means that prices stop rising quite as quickly, it does not mean that prices will start to fall.”

Separately, Scottish recruiters have seen an upturn in permanent staff hires for the first time in four months, driving further increases in salaries and wages.

Following monthly contractions throughout the last quarter of 2022, the latest data from RBS pointed to a notable rebound in permanent staff appointments across Scotland in January.

The fresh upturn in permanent staff hires was attributed to improved client demand and new projects. 

Scotland went against the broader UK trend, which recorded a fourth successive monthly decline in permanent placements at the start of 2023.

Temp billings fell across the Scottish private sector again in January, thereby extending the current sequence of reduction to four months.

The decrease in temp billings in Scotland contrasted with a modest upturn across the UK as a whole.

Sebastian Burnside, chief economist at Royal Bank of Scotland, commented: “The data indicates a shift in the market with a preference for permanent staff. However, lingering concerns over the economic outlook and intense cost pressures at firms indicate that recruitment decisions may be under more pressure in the months ahead.”