Mark Beresford Smith
Mark Berrisford-Smith, Head of Economics at HSBC has shared his Q3 economic update.
The pace of economic growth is slowing in most countries, under the weight of sharp increases in energy and food prices.
With no end in sight to the war in Ukraine, many of the world’s major economies will flirt with recession in the coming months, with the risks being especially acute for those countries in Europe that have relied heavily on imports of natural gas from Russia.
On a more positive note, the logjam in global supply chains has eased, as reflected in sharp falls in the cost of shipping cargoes from China to North America and north-west Europe.
Prices for many semiconductor products have also fallen sharply, which should soon alleviate the problems that have been faced in the past year or so by motor vehicle manufacturers.
Once again, inflation rates are projected to reach higher levels than previously expected, while anticipated growth rates have been marked lower, especially for China. For the most part, forecasts of policy interest rates have been moved higher as central banks finally get serious about tackling inflation. In particular, the policy rate in the USA is now expected to be close to 4.00% by the early months of 2023.
The UK is enduring another summer hiatus – the second in three years – as the Conservative Party decides whether Liz Truss or Rishi Sunak will replace Boris Johnson as Prime Minister.
The leadership contest has revealed deep fissures within the Party about economic policy, which has increased uncertainty about the short-term outlook.
Although households’ real disposable incomes have trended lower in the past year, the labour market remains extremely tight, which means that employees will continue to have bargaining power for some time to come.
Although the current trajectory of growth will be muddied by an extra Bank Holiday, a recession should be avoided, not least because the UK is not as vulnerable as some countries on the continent to a cessation of gas supplies from Russia.
Faced with an annual inflation rate which is expected to reach 12% in October, thanks to another increase in capped gas and electricity prices, the Bank of England is now expected to raise Bank Rate by a further 150 basis points.
This would mean a peak of 2.75% being reached in December. Yet, while the language from MPC members has sounded more hawkish of late, it could still be a close-run thing as to whether the Bank of England can get on top of inflation before the expectations and behavior of consumers and businesses becomes dislodged from the anchor of the 2% target.
To read the full report from Head of Economics at HSBC, Mark Berrisford-Smith, click here.