EU Commission does not expect the situation to improve
In November 2022, the EU Commission adjusted the economic forecast it made in the summer — and its forecast for 2023, which was already less than optimistic, is now even bleaker: the EU is expected to see economic growth of just 0.3 percent and inflation of 7 percent. The reasons for this poor economic situation include continued political uncertainty, high energy price pressure, reduced purchasing power among private households, weaker overseas trade and more restrictive financing terms.
However, economic growth in the EU is expected to increase by an average of 1.6 percent by 2024 and inflation should fall to 3 percent. According to the EU Commission, the labour market will remain resilient. The unemployment rate is expected to rise only slightly to 6.5 percent in 2023 and fall again to 6.4 percent in 2024.
IMF forecast: the UK set to be one of the worst performing countries
The International Monetary Fund (IMF) has also issued a forecast for 2023 — and it is equally bleak. The institute expects a stagnant global economy and persistent inflation. Overall, IMF experts expect growth of 2.7 percent, but it predicts a recession for the UK: the country’s economy is expected to shrink by 0.6 percent. This would make the UK one of the worst performers in comparison to other major industrialised countries. The reasons given are similar to those stated by the EU Commission: the war in Ukraine, strained trade relations with China, the economic consequences of the COVID-19 pandemic and high inflation.
According to MoneyWeek, the UK economy is facing a lot of problems right now
According to MoneyWeek, next year is expected to be another tough one for the UK economy. Inflation is likely to remain high and is unlikely to return to the Bank of England’s (BoE) target rate of 2 percent anytime soon. For the entirety of 2023, CPI inflation is expected to average 8.1 percent. With inflation high, interest rates will stay firm too. BoE policy rates are expected to rise to a peak of 4.5 percent by the end of Q1 2023.
This is another percentage point increase from the current rate of 3.5 percent and the bank expects it to stay at these levels until early 2024. As both inflation and interest rates stay high, the economy is expected to spiral into a recession.
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Huge challenges facing many sectors
Sector outlook: headwinds dominate sectoral outlook. According to KPMG’s UK Economic Outlook, survey indicators point to a broad-based slowdown affecting both manufacturing and services. The manufacturing sector faces further potential disruption from global supply chains, as well as more acute cost pressures arising from the more intensive use of energy. The hospitality sector appears to be the most heavily impacted by higher energy costs in the UK based on a recent ONS survey. Manufacturing, retail and other services are also among the most heavily impacted according to the same survey, with over 40 percent of respondents recording a negative impact. However, a weaker pound and a potentially more favorable growth momentum compared to the UK amongst some of the country’s main trading partners could provide some support to exporting manufacturers and export businesses more generally.
