Leading Indicators | BoE: Recession averted, but growth to remain subdued
Discover key economic and financial metrics, and what to look out for in the week ahead.
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Here we look at the leading indicators in the world of economics.
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DIVERGENCE IN THE UK GROWTH OUTLOOK
Released last week, the Bank of England’s (BoE) August Monetary Policy Report predicts the UK economy will expand by +0.50% in 2023, better than +0.25% forecast in May. The outlook for 2024, however, has been downgraded, with GDP growth expected to remain at +0.50% (previously +0.75%), as higher borrowing costs begin to take their toll on activity.
Amidst a higher profile for interest rates, the BoE predicts CPI inflation will fall to 5% by the end of this year, before returning to its 2% target by Q2 2025.
The bigger picture is that the range of forecast outcomes remains wide. For instance, the most optimistic contributors to the Treasury’s latest consensus forecasts predict a +0.50% rise in GDP this year, whilst the most pessimistic a fall of -0.40%. Predictions – even about the relatively near term – are proving divisive.
THE NUMBER OF INSOLVENCIES IS ON THE RISE
6,342 UK companies were declared insolvent in Q2 23, the highest level since the GFC. In addition to inflation, interest rates and energy costs, the rise likely reflects a delayed impact from the pandemic. Governments globally offered subsidies and loans to keep businesses afloat. In the UK, an £80bn business loan programme and a temporary bar on court-ordered liquidations resulted in a record low number of insolvencies during 2020-21, as the survival of some businesses was temporarily prolonged.
A hallmark of the current economic backdrop is divergence, and the picture for business health is no different. Last week’s ONS Business Survey found that while conditions remain challenging, 24% of firms reported having no concerns at all. Equally, while the UK labour market is gradually easing, unemployment remains at a relatively low 4%. Online job adverts – arguably a more high frequency indicator – are still running at levels seen before the pandemic.
THE PRACTICALITIES OF FOSTERING INNOVATION
Our research has long highlighted the power of innovation to drive economic growth – but fostering it can be easier to say than do. Boosted by public R&D expenditure that is set to reach £22bn by 2026/27, the UK’s aim to become a “science superpower” is undoubtedly a bright spot for the economy. However, there are practical issues to contend with, not least a shortage of laboratory space in the “Golden Triangle” (between Oxford, Cambridge and London). Here lies an opportunity, particularly for those investors that can quickly bring lab space to the market.
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