- Written by Faisal Islam
- economics editor
So far, 2023 has seen some false dawns for the UK economy. Data from the next few weeks will be important.
Recession has been avoided, but growth has fallen along the trough.
And even though inflation has fallen from double-digit levels a year ago, it turns out to be even more stubborn and persistent, spilling over into the services sector.
The ONS’ recent significant revisions to historic growth rates have changed the picture for the immediate post-pandemic recovery, especially when compared to other European countries.
But we may have to wait for news in the coming weeks to reassess the UK’s outlook more broadly.
Data released in September could show whether the crisis of the past three years is firmly coming to an end.
The rollercoaster situation within the government is expected to continue for at least the next few weeks.
unemployment It could rise again when new numbers are released on Tuesday. However, the UK should eventually return to a situation where revenue growth outpaces the rise in the cost of living.
of Economy (GDP) It may have shrunk a bit in July, but we’ll find out Wednesday.
Fuel price rise in August likely to lead to recent oil price plunge inflation The figures, announced by both the Chancellor of the Exchequer Jeremy Hunt and the Governor of the Bank of England, Andrew Bailey, were released next Wednesday.
All of this will be reflected in the Bank of England. interest rate Decision within 2 weeks.
A rate hike had been expected, but recent indications suggest the central bank may prefer to keep rates at current levels for an extended period of time.
Against this backdrop, the Office for Budget Responsibility (OBR) is incorporating the latest data into its forecasts, which will be published in November alongside the Autumn Statement.
On the surface, rising wages are pushing up tax burdens, meaning they will borrow less this year than originally expected.
However, more red ink has flowed into the protrusion. The March budget forecast predicted the Bank of England interest rate would peak at 4.3%. It is already 5.25%.
Britain’s 10-year borrowing rate was expected to average 3.6% in March, but reached 4.8% last month.
The OBR has already said in its budget that a 1 percentage point rise in borrowing costs would increase borrowing by £20bn in 2027-28, “reducing headroom” in its forecasts.
If the OBR indicates that the Treasury is not on track to meet its self-imposed borrowing limits, there could be pressure to increase taxes or cut spending.
Right now, the political conversation is about the opposite: whether to cut taxes before the election or increase spending on things like school repairs.
For the Prime Minister, this autumn should help put Britain on a stable and steady economic trajectory.
It’s not spectacular, but it feels like a world away from last year’s disastrous situation under his predecessor.
Inflation will continue to decline, falling to 3% in a year’s time. The UK will remain in a fairly middle-of-the-road growth lane among the major G7 economies.
A key focus of the Treasury’s medium-term policy will be to recognize and seek to address the UK’s relatively poor business investment performance.
The budget included a series of measures aimed at alleviating labor supply problems.
Our Autumn Statement will address this business investment challenge. The Treasury believes this explains a quarter of the UK’s lack of productivity compared to other major economies.
For example, if the UK were as productive as Germany, the benefit would be an increase in GDP per capita of £6,000.
However, families are not out of the woods yet.
Even if headline inflation falls and average incomes rise, it won’t mask the growing pain as rising interest rates hurt homeowners and renters.
The ONS Consumer Habits Survey found that most people are still spending more than usual on their grocery shopping, buying less and finding fewer varieties on their shelves.
Supermarkets are turning to hundreds of thousands of home-cooked meals to replace eating out.
Banks are noticing that mortgage holders used to the most expensive supermarkets are switching to discount retailers.
The Bank of England could issue a definitive directive for interest rates to peak at 5.5% by the end of this month, but at the cost of staying at that level for a year or so.
Industry believes that high gas stocks and the ability to reduce demand should make Europe as a whole resilient to further energy market disruptions.
However, the combination of further suspension of gas tanker trade and a very cold winter could still cause a nasty inflation surprise in the new year.
A path to more normal economic conditions could soon emerge. The data that will be released from now on should give us a big hint.