abrdn: The UK economy will face recession for much of 2023

May 11, 2023

Luke Bartholomew, Economist at abrdn, comments on today's Bank of England meeting:

'There were no surprises in the Bank’s decision to hike rates by 25bps today or in the composition of the vote. The forecasts showed some punchy upward revisions to growth expectations, and the Bank is no longer formally forecasting a recession. We continue to think the combination of the monetary tightening already in the pipeline, combined with a sharp US slowdown, will see the UK economy experience recession-like conditions for much of the year.

However, with inflation proving more resilient that expected, the Bank has not been able to pause hikes in the way that some policy makers have been calling for. We are still minded to think that today’s hike will be the last of this tightening cycle. But the risks are skewed heavily towards higher rates, and inflation will need to behave itself over the coming months if policy is indeed to remain on hold at these levels.

This means that incoming inflation data will be watched extremely closely over the next few months and may be a source of market volatility, especially around currency, with sterling now pricing in more aggressive action from the Bank of England from here compared to other central banks.'