Following the publication of their revised estimate of Q4 2023 UK GDP from the ONS might we dare to believe that there be brighter times ahead?
Lindsay James, investment strategist at Quilter Investors, has shared her reaction to the news with us as follows:
“While today’s GDP revision for Q4 of the previous year confirms a technical recession, there are signs elsewhere that the economy has gained a marginal momentum as we progress into 2024.
“It would be premature to declare that the economy has completely turned a corner; however, the indicators suggest that the recession experienced was relatively brief. The current expectations align more with a stabilisation in the first half of 2024 rather than a robust bounce-back, primarily due to the ongoing impact of high interest rates and their delayed effects on the market. Governor Andrew Bailey’s recent remarks that interest rate cuts are now ‘in play’ for future meetings hint at potential stimuli for growth in the latter part of the year.
“Nevertheless, while there are indications that business activity is on an upswing, the threat of inflationary pressures making a comeback cannot be ignored. Despite the base effects and a reduction in the Energy Price Cap contributing to a decrease in headline figures in the near term, the possibility of experiencing further inflationary surges persists. Such developments could constrain the Bank of England’s ability to implement rate cuts in the subsequent quarters.
“In summary, the UK economy shows signs of steadying, yet caution remains paramount as we navigate through the complexities of inflation and interest rate dynamics.”
Also commenting on the data, Luke Bartholomew, senior economist, abrdn, says:
“Today’s revised figures confirm what we already knew: the UK economy has been going through a rough patch. A lot of attention will focus on the binary question of recession or not. But given the somewhat arbitrary definition of a “technical recession”, the fact that the UK economy was indeed in a recession in the second half of last year is perhaps less interesting than the prolonged period of very weak growth that data points to. And when adjusted for changes in population, the picture is even more downbeat for living standards.
“However, there are now signs that the economy is starting to recover. Real income growth has turned positive as inflation has fallen sharply, and we are perhaps past the peak impact of higher interest rates. Indeed, we think the Bank of England will be cutting interest rates through the second half of this year as policy increasingly moves on from the fight against inflation to focusing on reviving the UK’s weak growth performance.”
