Economic Briefing Report: Consumption to fall over H1
The UK economy’s outlook has improved slightly despite the high inflationary environment. The Office for Budget Responsibility and Bank of England (BoE) now suggest the UK may avoid a technical recession this year.
Indeed, upward revisions to growth meant that the UK’s economy expanded slightly in the final quarter of 2022. Though the UK technically avoided a recession, growth is expected to have contracted over Q1 2023. But growth now returns in Q2 at 0.4%, according to the BoE. Despite the better headline picture for economic growth this year, household budgets will remain squeezed by relatively high energy bills, food prices and housing costs. Inflation will steadily fall over the course of the year, but is likely to remain above 4% by the end of the year. The BRC-Nielsen Shop Price Index (SPI) is showing that food inflation is persisting, with further increases in prices seen month-on-month.
Business activity (as measured by the Purchasing Managers’ Index) remained in positive territory and services activity was bolstered by high orders. Supply shortages acted as a constraint on growth though businesses also report heightening input cost pressure. With interest rates expected to be held higher for longer, business and household balance sheets are expected to weaken. Tough trading conditions ahead remain, at least until summer, with resultant insolvencies across many sectors expected throughout the year and a rise in unemployment to come.Harvir Dhillon, Economist at the British Retail Consortium