Transcript - UK Economic Outlook April 2023

Barret Kupelian

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Transcript

After a short period of economic turmoil, the UK economic outlook appears to be more positive, and less uncertain. All of this is good news for businesses and consumers. In our latest report we unpick some of these themes. Here are the three main points.

First, we expect the UK economy to grow by around 0.1% this year which is in stark contrast to our projections a few months back. A number of international and domestic factors explain our shifting stance which include the sustained decrease in spot and future natural gas prices, the better than expected reopening of the Chinese economy and a stronger Sterling all of which will contribute to lower domestic inflation and limit economic damage.

Second, on inflation, we continue to think that it will fall at a rapid pace in the next few months and reach the 3%-4% mark by the end of the calendar year. Inflationary pressures though are likely to come through the services sector in the next few months because of a relatively buoyant labour market and also because prices tend to be stickier. This means the Bank will likely raise rates further.

Third, labour inactivity remains a key issue at this point in the economic cycle with the latest data showing there are at least 200k people that remain inactive relative to the start of the pandemic. Re-incorporating them back into the labour market could mean a short-term boost to GDP of around 0.2% to 0.3%. Long-term economic inactivity will also inevitably increase due to structural reasons which is one area policymakers and businesses should be mindful of.

In conclusion, the UK economy has fared better than our projections at the end of last year mainly because of a stark improvement in the international outlook. Bar any surprises, the next few months should see this positivity continue on the back of falling inflation.

You can read our report here and sign up on our mailing list. And please contact me for further queries on how we can help you better understand what these trends mean for your business, people and communities.