14 August 2023
If you are covering the latest UK GDP statistics, please find below a comment from Marcus Brookes, chief investment officer at Quilter Investors:
“Earlier this week the National Institute of Economic and Social Research published forecasts that predicted the UK is facing five years of economic stagnation, and looking around you can see why such pessimistic views are percolating, despite the slightly better than expected GDP numbers this morning. UK GDP rose 0.5% in June and grew in the second quarter, with just a 0.2% increase. However, interest rates take a while to feed into the economy, but it is clear that they may be starting to have an effect. While there is unlikely to be one this year, the UK can still be put on recession watch for 2024 as it seeks to resolve its more unique set of economic circumstances.
“This all puts the Bank of England in a difficult period right now. Prior to this it was fairly easy to understand rate rises while inflation was on the way up and the labour market remained tight. But inflation is now on the way back down, albeit slower than most would like, and the economy is beginning to teeter. The Bank of England now needs to ask itself if more rate increases are really necessary. The market expectations have pared back from as high as around 6.5%, and we certainly don’t see a need to go above 6%. Looking globally the US Fed is at a point where it could probably have a prolonged pause, and this option will need to be considered by the Bank of England as the delayed effects of previous rate rises continue to slow the UK economy.
“Crucially, though, we are getting towards the start of proper election campaigning, and the state of the economy is likely to be the number one issue. Rishi Sunak and Jeremy Hunt will be hoping to turn things around quickly, but unfortunately, the economic gloom may be here to stay for a little while longer.”
