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“Economic conditions should improve gradually during coming months” says HSBC Economist Mark Berrisford-Smith.
UK Chief HSBC Economist has outlined his latest economic update for the country.
Key points:
The global economy has started 2023 on a depressed footing, as households across much of the world cope with resurgent inflation, which is running above the pace of earnings growth. China is enduring a difficult period in the wake of the removal of most Covid restrictions. But important progress has been made in dealing with the after-shocks from the Ukraine war, with last spring’s steep increase in commodity prices having been unwound, and with especially sharp falls in global shipping rates and in European wholesale prices for natural gas.
Economic conditions should improve gradually during coming months as rates of inflation continue to ease and as China’s wave of Covid infections abates. Nonetheless, the global economy is expected to grow by just 1.8% this year, with most advanced economies hardly growing at all. Growth will therefore be skewed towards emerging economies, especially China, India, and Indonesia.
Inflation has peaked in most countries, and policy interest rates will generally top out in the next few months. But few central banks will be in a position to begin cutting rates during 2023. We don’t expect the Federal Reserve to start cutting US interest rates until the middle of next year, while easing isn’t expected to begin in the Eurozone until 2025.
The UK economy, like many others, is flatlining. By the second quarter of this year, GDP is expected to be around 1% lower than in the same period of 2022. Even if there is a “technical” recession (two successive quarters of falling GDP), it will by past standards be a short and shallow one. Anaemic growth is expected to resume in the second half of 2023 once the rate of inflation is roughly back in line with earnings growth.
Businesses will face increased financial stress, especially in the first half of 2023, though the rate of failures should remain below the levels seen in 2008-09. Small businesses in the retail and hospitality sectors will be especially vulnerable, while weak demand and higher borrowing costs will adversely affect trading conditions for businesses involved in the housing market and the motor trade.
Inflation is now on the way down, but it is likely to take around three years to get the annual rate back near to the government’s 2% target. The Bank of England is set to raise UK Bank Rate once more in February, most likely by 25 basis points, but possibly by 50 basis points. Bank Rate is then expected to be left on hold until into 2025.
To read the full report, click here.