The United Kingdom will face one of the longest recession and weakest recovery among G7 countries throughout 2023 due to long-term inflationary effects of the pandemic and conflict in Ukraine, the US media reported, citing leading UK economists.
According to economists interviewed by the media, the UK would face a longer period of "inflationary shock" than most of G7 states, which would force the government to conduct a strict fiscal policy throughout 2023.
"The combination of falling real wages, tight financial conditions and a housing market correction are as bad as it gets," claims Kallum Pickering, senior economist at Berenberg bank.
The UK economy is "unusually exposed" to a worldwide surge in energy prices and interest rates as the country's demand for gas hardly matches storage capacity and a large number of mortgage deals will have to renew fixed-rate contracts, the report noted.
The UK has been experiencing an economic crisis over the past months. According to the Bank of England, the UK economy has entered a recession expected to last until the second half of 2024.
Investors should brace for another turbulent year in the financial markets, economists have warned as central banks fight inflation, China reopens its economy after Covid-19 restrictions and the Ukraine war pushes the global economy towards recession.
The first half of the new year is likely to be choppy, according to Wall Street predictions, after global markets suffered their biggest fall since the 2008 financial crisis last year.
But the US S&P 500 is still expected to end 2023 a little higher than it began the year. The average target of 22 strategists polled by Bloomberg has the S&P 500 ending 2023 at 4,078 points – about 6% higher than it ended 2022.
Economists predict the US Federal Reserve will slow its interest rate hikes this year, as the outlook for America’s economy sours. US inflation has dropped back from its peak last summer, while the series of Fed rate hikes in 2022 has also cooled the housing market.
“We believe that a period of sub-trend growth is inevitable, and recession risks are high as the lagged effects of tighter monetary policy work their way through the economy,” said Brian Rose, senior US economist at UBS Global Wealth Management.
Here are the full responses to questions about the economic outlook for 2023
UK economy: Will the UK economy outpace or lag behind other developed economies in 2023 and how will it feel for households?
Silvia Ardagna, head of European economics at Barclays: Lag behind the US but contract together with the euro area. We forecast a five-quarter recession with peak-to-trough contraction in real gross domestic product of about 1 per cent. Households’ consumption is contracting and is the main determinant of the recession.
Kate Barker, pension trustee at BCSSS: The UK likely to lag other economies — productivity growth seems unlikely to pick up. Households without savings from the Covid-19 period and especially those with mortgages will continue to struggle.
Nicholas Barr, professor of public economics at London School of Economics (LSE): Growth in the UK will be below the average for the G7 and EU.
Households will feel the effects acutely: the second year of poor economic performance coming on top of falling real pay in 2022 will adversely affect living standards both in reality and perception.
Ray Barrell, emeritus professor of economics and finance at Brunel University: UK growth is likely to lag other developed economies in 2023.
The shadow of Brexit will continue to reduce growth by up to half a per cent a year for two or three more years. Unwise short-term actions combined with poor long-term planning over the last 10 years leave the UK more vulnerable to shocks than other developed countries.
We lack the social insurance of large gas stocks. Uncertainty about the wisdom of policymakers will persist after the [Liz] Truss experiment.
Encouraging public sector strikes raises uncertainty, but it is probably the last bid for middle-class votes by a failing government. All hinder growth prospects and will impact on household living standards. Real disposable incomes are likely to continue to fall next year.
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