Good news on the UK Economy

We have all got used to bad news lately. Inflation running rampant, interest rates rocketing and warnings about a recession to rival the Great Depression of 90 years ago.  

At Continuum we are pleased to be able to provide some good news – starting with that recession which might not happen at all. 

The recession: possibly not coming

Back in December, the Bank of England was warning that we were probably already in a recession, and that it was due to be one of the longest and most painful in recent memory.

A recession is when two consecutive quarters of negative GDP growth are recorded. Technically, this happened during the pandemic, but it was short-lived compared to more conventional recessions such as the Great Financial Crisis of 2008

The downturn, with unemployment, misery and inflation were all being predicted to last the whole of 2023. It does not seem to be happening.

Measuring economic activity is difficult, and being able to see underlying trends is made more complicated still by the effects of external events, such as the death of the Queen and the war in Ukraine. But we are currently not in recession at all.

The FTSE has hit record highs as optimism replaces pessimism as the market sentiment. The jobs market seems to be booming. Consumer confidence may not have taken the hit it looked due for.

The view from the National Institute of Economic and Social Research (NIESR) is that a UK recession is unlikely in 2023. Rather than either talking up the economy or trying to put a damper on it, they are an academic organisation, with no hidden agenda. Their view might be clearer than other observers.

It may still be a little early for opening the champagne. The Bank of England still predicts some kind of recession this year, but the good news might not stop there.

Inflation: still painful, but going down

Inflation is painful for everyone. Food and energy are essential, and both have fed inflation in the last few months.

But the effect of factors like the Ukraine war are starting to be factored into prices, and the pressure for another rise may be easing.

Inflation and the consequent need to hike the bank rate were among the main triggers of recession. Inflation was running at a disturbingly high level at the end of last year, around 10.7% in November, a far cry from the 2% target that the bank of England has been set.

The latest figures suggest the figure has fallen a little, and the Bank’s official view is that inflation peaked last year and will keep slowing in 2023, falling to around 4% by the end of the year.

The Office of Budget Responsibility, which assesses the government’s economic plans, predicts that inflation will fall to 3.75% by the final quarter of 2023.

Interest rate: not as high as expected

In an attempt to get inflation under control the Bank of England has already raised interest rates for the 10th time in a row to 4%, its highest level for 14 years.

There could be another rise to come over the next month or so, but if inflation really is falling, the interest rate may be reaching its peak – or at least a plateauwith perhaps another 0.5% to come.

This level is substantially lower than the figures being talked about in the panic after the Truss/Kwarteng minibudget, when 6% or even 7% was being mentioned.

The big pain factor with interest rates increases – mortgage repayments – may be reduced. Lenders who feared the worst had pushed up their rates for fixed rate loans. These are now coming back down.

What happens now?

Things seem to be improving, but many people are still feeling the financial pressure. There will be a budget in March, and what really happens to the economy next could depend on its contents. 

Help with energy bills and household incomes could be on the cards. Tax could go up – or down.

As the doomsayers predicted recession – or rather the lack of it – has shown, it is impossible to know what the financial future holds.

At Continuum, we can help you prepare for an unpredictable future, by helping you get the financial plans you need in place. We can help get the mortgage, pension and financial protection you need.

To start making the most of your future, call us today.

Your home may be repossessed if you do not keep up repayments on your mortgage.

The tax treatment depends on the individual circumstances and may be subject to change in the future. We recommended that you seek professional advice on personal taxation matters.

The Financial Conduct Authority does not regulate taxation advice.

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