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Deutsche Bank: UK could avoid recession thanks to Sunak's cost of living package

·Finance Reporter, Yahoo Finance UK
·2 min read
British Chancellor of the Exchequer Rishi Sunak leaves Millbank Studios after a media interview in London, Britain, May 27, 2022. REUTERS/John Sibley
Chancellor Rishi Sunak has announced billions in extra aid. Photo: John Sibley/Reuters

Rishi Sunak’s £15bn ($18.9bn) support package should help the UK avoid falling into a recession, analysts at Deutsche Bank (DBK.DE) have said.

Deutsche Bank’s chief UK economist Sanjay Raja, said in a note to clients that the £400 energy bill rebate and the "material benefits boost" of £650 to the lowest income households will give a "modest" lift to growth, of around 0.4% of GDP

Raja said the UK’s cost of living support is now above the average for Europe’s largest economies.

"In total, chancellor Sunak has now pushed close to 1.5% of GDP in support measures to help households through one of the worst income shocks since the Second World War. This is now, on average, above what has been announced across the Euroarea Big Four," he said.

Read more: 1 million pensioners risk missing out on Rishi Sunak’s one-off £650 payment

However, he warned that much of the support won’t kick in until later in the year: "That will leave households to weather the oncoming real income shock for several more months without much added support.

"Overall, however, the modest lift in GDP should support our view that the UK will just about avoid a technical recession around the turn of the year, though we still continue to think that intensifying headwinds leave the economy on the brink of one."

Prime minister Boris Johnson also said that the British economy was not necessarily heading for a recession.

Asked in an interview with Bloomberg UK whether the UK was headed for a recession, Johnson said “not necessarily at all.”

Read more: Is the UK heading into a recession?

Johnson also warned there are difficult times ahead: “We’re going to have a difficult period, and we’ve got to be absolutely clear with people it’s going to be difficult, and the government cannot solve every problem.

“We can’t cover everybody’s extra cost. But what we can do is make sure that we deal with the underlying causes of inflation, but also keep our economy strong and open to investment.”

Watch: Rishi Sunak defends universal energy bills grant