United-Kingdom –2023-2024 Scenario: recession avoided, inflation persists
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- Recent economic trends
- Outline of our scenario
After narrowly avoiding a recession in the fourth quarter of 2022, the UK economy had an encouraging start to the year. GDP rose in January and PMI surveys rebounded strongly in February and March. The improvement in business confidence looks driven by the fall in energy prices and a rebound in demand. In addition, bottlenecks and shortages of materials appear to have receded, boosting the confidence of manufacturers. The labour market, which remains tight, is showing signs of easing, but the trend is still too timid to dispel the BoE’s fears over the risks of persistent inflation.
The short-term outlook for the UK economy appears more favourable than three months ago, but growth headwinds remain strong. The cost of living crisis is far from over, inflation now being boosted by higher food prices. Monetary policy tightening has yet to produce its full effects on growth through higher interest rates and tighter credit standards. The main risks to growth are the uncertainties linked to the geopolitical crisis (particularly with the risk of renewed tensions on energy prices) and the impact on growth, but also on the financial stability of the significant tightening of monetary policy in the UK and abroad.Slavena NAZAROVA, Economist