The UK economy faces a “lengthy period of stagnation” amid persistent inflation, JP Morgan warned as it published an updated forecast for the coming year, with fellow investment bank Citigroup predicting a much bigger decline.
Rising fuel prices, tighter monetary and fiscal policies, global economic downturn, rising ill-health and knock-on effects from the pandemic and Brexit will all continue to impact the UK economy next year, JP Morgan said.
As a result, economists forecast gross domestic product is will fall 0.6% in the coming year.
Meanwhile, Citi also today issued its own prediction that UK GDP will be squeezed 1.5% next year.
This is at the worse end of forecasts from major investment banks, a sharper decline than the dramatic 1.2% fall forecast by Goldman Sachs (NYSE:GS), with economists on average foreseeing a 0.5% drop in GDP.
In chancellor Jeremy Hunt’s recent autumn statement it was revealed that the Office for Budget Responsibility projects GDP to decline 1.4% in 2023 with growth forecast of 1.3% in 2024.
“The UK now faces a lengthy period of stagnation with the case for optimism resting more on hope than expectation,” JPMorgan said.
While inflation, currently above 11%, is set to drop in the new year, JPM suggested labour market resilience and wage growth will see the core figure remain well above the Bank of England’s target of 2%.
It added: “Unless there is an unanticipated boost to labour supply or productivity, any potential upside risks to growth are likely to generate more inflation and put the BoE under greater pressure to raise rates.”
It anticipated Bank of England base rate hikes to 4.25%, from 3% now, by the first quarter of 2023, but suggested the current outlook suggests this could be higher.
Citi meanwhile projected that the UK and eurozone will both be in recession the end of this year, as both economies face the heat of energy constraints on supply and demand front, along with tighter monetary and fiscal policies.
However the euro area is seen only declining 0.4%.
Over the entire global economy, Citi strategists predicted “rolling” country-level recessions through the year, though with the Chinese government predicted to soften its zero-Covid policy, helping drive 5.6% GDP growth.