Q4 2023 Forecast: UK Economy’s Rough Ride Ahead
The UK's economy faces a turbulent end to 2023 as the Bank of England halts its rapid monetary tightening due to concerning indicators.
Recession worries are on the rise, with purchasing manager surveys suggesting a contraction and potential unemployment spikes, shifting the policy focus from inflation to broader economic risks.
S&P Global’s purchasing managers’ index fell deeper into contraction territory in September, with companies shedding jobs at the quickest rate in over a decade.
The BOE responded by postponing an expected rate hike, now forecasting only 0.1% GDP growth in Q3, down from the previous 0.4% projection.
Sandra Horsfield, an economist at Investec, suggests a mild recession may occur this winter.
Inflation is decreasing faster than anticipated, with the Consumer Prices Index dropping to 6.7% in August, although still above the 2% target.
Governor Andrew Bailey anticipates further declines in inflation, though he warns against complacency and leaves the door open for rate hikes.
Retail sales rebounded slightly in August, but a net drag on Q3 GDP is likely unless September data shows a substantial increase.
According to Alex Kerr of Capital Economics, consumer confidence is improving but may wane due to rising interest rates.
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Despite positive public finance data, fiscal support from the government is unlikely, given high public debt levels.
Chancellor Jeremy Hunt has dampened hopes of tax cuts, citing economic and fiscal challenges.
In the housing market, rising mortgage rates have led to a gradual cooling, with average house prices down slightly from their peak in July.
Mortgage lender data suggests the UK is about halfway through an expected 10% decline, impacting homeowner wealth and increasing savings for prospective buyers.
Alexander Stefanov
Reporter at CoinsPress
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