abrdn: UK economy will be in recession-like circumstances for much of this year

abrdn: UK economy will be in recession-like circumstances for much of this year

May 8, 2023

UK
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Luke Bartholomew, Economist at abrdn, comments on next Thursday's Bank of England meeting.

The strength of recent inflation and wage growth data means the Bank of England is set to hike rates by 25bps next week. This is likely to be the last hike of this cycle, with many policy makers growing uncomfortable about how rapidly policy has been tightened.

Despite some recent signs that growth is starting to pick-up, we think the economy will endure recession-linked conditions for much of this year.

Much of the lagged impact of the BoE’s extensive monetary tightening is yet to be felt, and real income growth continues to be extremely weak. Moreover, we think that ongoing banking sector turmoil in the US will help tip the US economy into recession later this year, with significant negative spillovers to the global economy including to the UK.

As such, we expect debate to quickly turn to the extent of the UK’s monetary easing cycle and continue to think rates will be cut well in excess of what is priced by markets.

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