Introduction: Inflation could push UK economy into recession

From 3h ago

08.10

https://www.theguardian.com/politics/live/2022/jun/27/boris-johnson-tories-g7-government-latest-updates

 

Introduction: Inflation could push UK economy into recession

 

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

 

Rising recession and fresh geopolitical shocks are threatening to push the UK economy into recession.

 

KPMG’s latest UK Economic Outlook report, released this morning, shows that the cost of living crisis could help trigger “a mild recession” in 2023, as the Ukraine war and China lockdowns push up commodity prices and put strain on supply chains.

 

KPMG’s baseline case is for a sharp slowdown -- with UK GDP growth more than halving this year to 3.2%, before slowing further to 0.7% in 2023.

 

But it warns that:

 

There are growing concerns that a combination of policy actions to combat inflation and any further fallouts as a result of geopolitical tensions could bring about another recession.

 

The report suggests the UK could suffer a 1.5% fall in GDP in the year between the third quarter of this year, and 2023, if three key headwinds hit the economy:

 

A potential US recession arising from a significant monetary tightening by the US Fed;

 

A potential Eurozone recession due to interruptions of gas supplies from Russia, as well as a significant additional shock to global wholesale gas and oil prices;

 

An ongoing and worsening squeeze on UK household incomes leading to a sharp decline in household consumption.

KPMG wans that the risks are skewed to the downside:

 

A sharper deterioration in the external environment – causing a recession in some of the UK’s major trading partners – coupled with a stronger fall in consumer spending in the UK, could see the UK economy entering a mild recession next year.

 

We released our latest UK economic outlook report today, where we discuss the possibility of a mild recession given the external and domestic headwinds ahead. You can read it here:https://t.co/vw85JO5QDy

 

— Yael Selfin (@yaelselfin) June 27, 2022

A growing number of economists have predicted that America could fall into recession next year, as the US Fedearl Reserve lifts interest rates to slow inflation. Europe’s economy appears to be slowing too, as surging energy prices hit consumers and businesses.

 

With UK inflation at 40-year highs of 9.1%, consumers are becoming more sensitive to price increases as real incomes get squeezed, the report says:

 

The cost of living crisis and the rising tax burden have led to a fall in consumer confidence which is set to drag on discretionary spending.

 

UK consumer confidence has also hit record lows, as people have cut back on spending.