The UK economy has experienced a series of false dawns in 2023, with growth remaining sluggish and inflation proving stubborn. The Office for National Statistics (ONS) recently revised its historical growth figures, which has changed the perception of the country’s post-pandemic recovery. However, a broader assessment of the UK’s prospects will have to wait for data to be released in the coming weeks.
The next few weeks are critical for the UK economy. Data released in September will determine whether the crises of the past three years are being left behind. There are expectations within the government that the rollercoaster ride will continue for at least a few more weeks. Unemployment figures set to be released on Tuesday may tick up, but the UK is expected to see growth in earnings outpace the rise in the cost of living.
Furthermore, there is the possibility that the economy may have shrunk slightly in July, and rising fuel prices in August could lead to a blip in inflation numbers. These factors will play into the Bank of England’s decision on interest rates in two weeks’ time. While a rate rise had been anticipated, recent hints suggest that the Bank may keep rates at their current levels for longer.
The Office for Budget Responsibility (OBR) is plugging the latest data into its forecasts, which will be published in November alongside the Autumn Statement. Higher wages have led to an increase in the tax take, resulting in borrowing numbers being lower than initially forecast. However, there are concerns that the borrowing costs are exceeding expectations, putting pressure on the Treasury to consider tax rises or spending cuts.
For Chancellor, this autumn will be crucial in providing stability and a steady economic trajectory for Britain. While not spectacular, the outlook should be vastly improved from the previous year. Inflation is expected to continue falling, and the UK’s growth will remain competitive among the G7 economies. The Treasury’s focus will be on addressing the country’s poor record on business investment.
Despite the positive outlook, households are not yet out of the woods. Rising interest rates will impact homeowners and renters, even with declining inflation rates and increasing average earnings. The ONS consumer habits survey reveals that people are still spending more on food shopping, buying less, and experiencing a lack of variety on store shelves. Additionally, banks have noticed mortgage holders switching from pricey supermarkets to discount retailers.
By the end of the month, the Bank of England may confirm that interest rates have peaked at 5.5%. Industry experts believe that Europe should be resilient to any further disruptions in the energy market due to high stocks of gas and the ability to reduce demand. However, if there are further stoppages in gas tanker trade combined with a harsh winter, there is a possibility of an inflationary surprise in the new year.
Overall, the UK may soon see a path to a more normal economic situation. The data to be released in the coming weeks will provide significant insight into the country’s economic prospects.