UK Finance November 2022 update – mini-budget fall out, recession warning and inflation latest
UK Finance, the leading body for the country’s financial services sector, has published its latest economic update – focusing on November 2022 and the fall out from the government’s disastrously received ‘mini budget’.
The mini-budget – what happened?
The UK’s political and economic situation is changing so rapidly at the moment that it’s difficult for financial experts to keep up.
In its October 2022 briefing, the trade body provided its assessment of the impact of then-Chancellor Kwasi Kwarteng’s mini budget. But just a month later, most of the statement announcements have either been scrapped or reduced in scale. This included planned corporation tax cuts, cutting the basic rate of income tax and reversing IR35 changes.
The next major event was the departure of the Chancellor, and then the Prime Minister herself. With new Chancellor Jeremy Hunt and PM Rishi Sunak in place, and a commitment made to public the Office for Budget Responsibility (OBR) forecasts – the market response was positive. Sterling showed some recovery, with gilt yields returning to pre-September levels.
A full Autumn Statement is expected by 17th November, along with the OBR forecast. In the meantime, UK Finance has been making its own projections for what’s next – and it’s not cheerful reading.
UK facing 2023 recession
The last time the OBR published a forecast was spring 2022. UK Finance has compared its projections from that time with the latest independent forecast published by HM Treasure.
The major difference is GDP growth. The OBR had predicted growth of around 1.8% in 2023, but the latest HMT data predicts that GDP will actually contract next year. UK Finance says that the consensus is that GPB will contract by 0.3% in 2023, affected by higher inflation, soaring energy prices, tighter policy and the “slowdown in global activity linked to the conflict in Ukraine”.
All of this means that the UK economy is likely to tip into recession in 2023.
The latest on inflation
CPI inflation was recorded at above 10% in September, but certain categories of consumer prices have seen prices rise far above this. Unsurprisingly, data from the ONS shows the fastest price rises in energy and utility bills, as well as rent prices. This category has seen prices rise by around 20% year on year.
Also accelerating rapidly is food price inflation, with prices up around 14% in the year up to September. A worrying finding is that the cost of grocery staples such as pasta, milk, flour and oil seems to be rising more quickly than other goods.
Final thoughts from UK Finance
In the roundup for its November 2022 update, UK Finance concludes:
“Last month’s briefing noted that it had been a difficult first month for the new government. The same is true this month, but the economic to do list has become a little more manageable, though the groundwork is being laid for further tax increases and tricky spending decisions.
“However, with the growth outlook faltering and long-term problems such as poor productivity, the shift to net zero and required investment in infrastructure and housing, the 17 November statement will need to balance fiscal discipline with maintaining investment in key public services.”
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