United Kingdom – 2023-2024 Scenario: monetary tightening weighs on the outlook
- Recent economic developments
- The outline of our scenario
InQ223, activity grew 0.2% QoQ,slightly better than expected by the consensus and the Bank of England (BoE), which were expecting zero growth and 0.1% QoQ respectively (our forecast was 0.3% QoQ). The details showed that domestic demand was still strong overall given the extent of the past rise in interest rates (515 basis points since the start of tightening in December 2021) and the significant rebound in corporate bankruptcies (to their highest level since 2009). However, since the end of the summer, the short-term outlook has darkened.
Our scenario now assumes a mild recession in the second half of the year. This should be driven by a slowdown in household consumption and investment, with a drop in residential investment in particular, but also by weakening external demand. However, we expect only a very slight decline in activity, by 0.2% and 0.1% QoQ in Q323 and Q423 respectively, which would leave growth on a year-on-year basis still slightly positive, albeit down (to 0.2% YoY in Q423 versus 0.6% YoY in Q223). Household consumption could, in fact, slow down without collapsing: households will benefit from real income growth that has finally returned to positive territory and significant excess savings accumulated during the pandemic.Slavena NAZAROVA, Economist