Afternoon summary
Time to wrap up…
The UK economy could be dragged into a recession if the energy price shock continues, and prompts higher interest rates, Morgan Stanley has warned.
The Bank of England’s chief economist has flagged that the UK faces ‘upside risks to price stability’ from the Iran war.
British firms have been hit by soaring costs this month, with input price inflation jumping by the most since the Black Wednesday sterling crisis of 1992.
Growth has also slowed across eurozone companies, with companies in Japan and India also reporting a slowdown
Mortgage rates have risen again too, as lenders remove products from the market in a blow to first-time buyers
The Iran war may also have dampened consumer spending, with retail sales dropping this month at the fastest rate since shops were closed in the Covid-19 pandemic.
RSM: decent chance of a UK recession
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, has also suggested the UK could drop into recession (usually defined as two quarterly contractions in a row).
He wrote this morning:
“Looking ahead, the inevitable impact of soaring energy prices will be slower growth.
We now expect the economy to stagnate for the rest of this year as higher energy prices and tighter financial conditions cause disposable income to shrink. Admittedly, the household saving rate is high entering the crisis, which would allow households to cushion the blow to disposable incomes by saving less and government support may also reduce the impact on GDP. But the given real household disposable income was already predicted to grow by less than 1% this year, it is inevitable that consumer spending will slow.
Obviously, everything depends on how energy prices move going forward but we now expect growth of around 0.5% this year with a decent chance of a recession.”
