22 December 2023
If you are covering the latest UK GDP figures from the ONS, please see the following comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
“ONS data this morning reveals UK GDP fell by a surprise 0.1% in Q3 compared to the previous quarter, revised down from a first estimate of no growth, highlighting just how much of a strain there currently is on the UK economy. Q2 was also revised down and is now estimated to have shown no growth compared to the 0.2% increase previously estimated, meaning the UK has barely scraped by without a recession in 2023.
“Growth is weakening and interest rates are really beginning to bite and while a recession has just been avoided to date, there is no guarantee one will be avoided in 2024. You just have to look at October’s -0.3% reading to see that growth is trending further in the wrong direction. Inflation has eased more than anticipated and interest rate predictions are suggesting more easing than originally thought in 2024, but the damage may already have been done. Certainly, Rishi Sunak’s pledge to grow the economy is now severely in doubt.
“This is going to ratchet the pressure up on the Bank of England to cut interest rates. The government would certainly like this given 2024 is likely to be an election year, but ultimately the BoE will stick to the narrative of the job is not yet done on inflation and it is too early to be talking about rate cuts. Indeed, the now rumoured February rate cut does seem a little premature given the messaging coming out of Threadneedle Street.
“The positive news is that the backdrop hasn’t been quite as negative as feared and the clouds do seem to be beginning to lift in time for the new year. Rates have hopefully peaked at the very least, while energy prices look like they will come down again. Recession remains very much in view, it all just depends now if the UK can eke out enough growth in the near term to dodge it.”
