The U.K. Economy Is In Trouble, Fall Of GDP Is Expected!
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A difficult year ahead for the global economy is set to hit some countries harder than others. Inflation was one of the biggest macroeconomic themes in 2022 and it is likely to remain so in 2023. Inflation also contributes to gross domestic product. In Great Britain, this indicator does not look optimistic, and its upcoming reading may turn out to be crucial for the economy this year. The Bank of England has said the country is on track for a prolonged recession, as households struggle to keep up with the soaring costs of food, energy and other basic essentials.
Economists opinion
Around four-fifths of economists say the UK will experience a much longer recession than its peers. They predict a difficult year 2023 and a potential return to normal by 2024.
The UK will face one of the worst recessions and weakest recoveries in the G7 in the coming year, as households pay a heavy price for the government’s policy failings, some economists say.
A large proportion of experts expect the UK to fall behind its peers, with gross domestic product already contracting and expected to continue to do so for most or all of 2023. The result is expected to be an increasingly steep decline in household income as higher credit costs add to the pain already caused by soaring food and energy prices.
In its macro forecast for 2023, Goldman Sachs forecast a 1.2% decline in UK real GDP over the course of the year, well below all other major G-10 economies.
ING pointed out that GDP figures have been somewhat discrepant recently, partly due to the Queen's funeral in September last year.
But the economy is clearly weakening and ING expects a negative monthly result in November, after an artificial rebound in October after September's extra day off.
Inflation
Throughout the last year, the Bank of England has been raising interest rates in an attempt to cool down rampant inflation. This resulted in an increase in interest rates from 0.25% to 3.5%.
The cost of borrowing in the UK has increased dramatically, affecting the ability of businesses to borrow money, but also the cost of mortgage payments for millions of Britons. As mortgage repayments increase, household disposable income decreases. Disposable income is also affected by inflation as the cost of goods and services increases.
The Office for National Statistics reported last month that Britain's inflation rate was 10.7% in November, down from a 40-year high of 11.1%.
GDP
Economic activity has slowed sharply in recent months as consumers tighten their belts in response to soaring living costs, while business investment has slumped amid concerns over the strength of the UK and global economy.
Last month, GDP showed that the UK economy contracted at a rate of -0.3% in the last quarter. This reinforces speculation that the UK is facing a long recession. When it comes to forecasts for quarterly or year-on-year results, there are no forecasts, but a contraction is to be expected given the prevailing economic conditions.
The Pound (GBP) on FX market
Based on the current outlook, investors can expect a difficult year ahead for the pound, with the value of sterling coming under significant pressure if the economies of its major counterparts continue to outperform the UK.
During the last recession, the pound fell to 1.05 to the euro and 1.14 to the dollar. Cable (GBPUSD) was trading at 1.14
Source: investing.com
