The Office for Budget Responsibility revised its outlook for U.K. gross domestic product next year downward to -1.4%, forecasting a yearlong recession.
In its previous outlook released in March, the OBR — which analyzes the U.K.’s public finances — had forecast 2023 GDP to grow by 1.8%.
The OBR said high inflation and rising interest rates are weighing on demand, leading it to forecast a recession lasting just over a year and starting in the third quarter of 2022. GDP data for the third quarter were released after the OBR’s forecast closed and showed a 0.2% contraction.
The peak-to-trough fall in output will be 2.1%, the OBR said in its November update.
However, 2022 GDP was revised upward to 4.2%, from a 3.8% forecast made in March. In 2024, GDP growth is forecast at 1.3%, down from 1.8% in the March outlook, as energy prices and inflation are expected to drop and short-term interest rates fall back from their peaks, the November update said.
Also Thursday, Jeremy Hunt, the U.K. chancellor of the exchequer, announced the Autumn Statement — an annual release of the government’s changes to its tax and financial policies.
Silvia Dall’Angelo, senior economist at Federated Hermes, said in an emailed comment that the statement “delivered on expectations that shaped the press in the weeks leading up” to the release of the Autumn Statement, with a £55 billion ($65 billion) fiscal consolidation plan that includes tax increases and spending cuts.
Financial markets reaction was limited, Ms. Dall’Angelo added.
On Wednesday, the U.K.’s Office for National Statistics said year-over-year inflation hit a new 40-year high in October, at 11.1%. That compared with 10.1% inflation in September.
Modupe Adegbembo, Group of Seven economist at AXA Investment Managers, said in an emailed statement that the firm continues to expect the Bank of England’s monetary policy committee to hike interest rates by 50 basis points at its December meeting.
“The upside surprise in inflation and more importantly the fact that core has yet to begin decelerating will underscore for the MPC the need to lean against inflationary pressures,” Ms. Adegbembo said.
AXA IM executives also expect further hikes of 50 basis points in February and 25 basis points in March, bringing the bank rate to 4.25%. The firm then expects the bank to begin unwinding some of its hikes toward the end of 2023, with a 25-basis-point cut forecast for the fourth quarter of next year.
