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Update on the UK Economy - October 2022

Geoff Riley

24th October 2022

Here is a quick update on the UK economy. We'll aim to produce one each month as we head into what many economists predict will be a difficult autumn and winter for the UK. Can a severe recession be avoided?

Update on the UK Economy - October 2022

A turning point in the economic cycle is happening. The consumer and business confidence data suggests that a recession in 2023 is more or less inevitable and the UK economy may already be in the early stages of a downturn.

  • The UK economy is heading into a recession in 2023
  • Retail sales and GDP are now starting to decline
  • Consumer confidence remains very how
  • Real incomes are falling
  • The squeeze on living standards worsened by a rising tax burden
  • But – for the moment – unemployment remains low

There are numerous media headlines about the plight of smaller businesses struggling to cope with the surge in energy bills, falling demand and other cost pressures such as claims for higher wages. The FT reported recently that "Rising costs continue to hit the majority of small firms. A growing proportion of smaller businesses are relying on debt to survive."

A growing number of companies listed on the UK stock market have issued profit warnings.
A profit warning occurs when management of a quoted company inform the stock market that upcoming profits are likely to be significantly lower than current market expectations. According to the FT, "More FTSE-listed companies have been forced to issue profit warnings this quarter than at any time since the global financial crisis."

The unemployment data remains encouraging with the rate falling to 3.5% of the labour force in August. The jobless figure however tends to be a lagging indicator of the economic cycle. And most economists expect unemployment to start rising as we head into 2023.

There are some tentative signs that sterling in recovering some of the lost ground against the US dollar when the pound fell below $1.05 in the aftermath of the failed mini-budget. But continued political uncertainty is a risk factor that will weigh down on sterling even if the Bank of England continues raising interest rate.

The key question going forward is how much further will base rate rise - Bank of England widely expected to raise rate by 0.75 percentage points early in November. The BoE’s deputy governor Ben Broadbent has warned that base rates of over 5 per cent would deliver a 'material hit' to the economy.

Keep up to date with key developments on the UK economy by subscribing to our daily blog and regular updates on YouTube and Instagram.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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