Britain is showing signs of resilience in the face of the interest rate crisis
Experts claim the UK economy is showing “signs of resilience” despite high interest rates.
Even with interest rates at their highest level in 15 years, there are signs the economy will hold up, says the EY Item Club autumn forecast.
Hywel Ball, the UK chief executive of accounting firm EY, said: “The cost of debt will be the biggest headwind for the economy over the next 12 months, with consequences for businesses and consumers.”
But he added: “Although high interest rates will weigh heavily on growth, there are still signs of resilience from which we can draw positives.”
“Inflation is heading in the right direction, average wages are rising again in real terms and balance sheets of households and companies remain unusually healthy.” The economic forecasting group EY Item Club assumes that the sluggish growth is due to the burden of high interest rates and the weaker than expected The failed labor market will last until 2024.
“Signs of resilience”: There are signs the economy will hold up, according to the EY Item Club autumn forecast
It forecasts the economy will grow 0.6 percent this year, better than the 0.4 percent it forecast in a July report.
However, GDP in 2024 is expected to be slightly lower than hoped, with Item Club economists raising their forecast from 0.8 percent to 0.7 percent.
The Bank of England has raised its key interest rate 14 times in a row but kept it in place last month after price increases slowed faster than expected.
The bank has aimed to curb inflation by raising interest rates, sparking fears among millions of mortgage holders.
After keeping the key interest rate at 5.25 percent last month, Chancellor Jeremy Hunt said the UK was “showing a turnaround against high inflation”.
The pace of price increases fell to 6.7 percent in the year to August, down from 6.8 percent in the year to July. Cooling food inflation in popular products such as milk, cheese and eggs contributed to the surprise decline.
The Item Club forecast that headline inflation would fall to around 4.5 percent by the end of 2023, before reaching the Bank of England’s target of 2 percent in the second half of 2024.
Falling inflation, a likely end to interest rate hikes and a return to real wage growth would prevent the economy from slipping into recession, she predicted.
The British economy returned to growth in August, rising 0.2 percent after a sharp slump in July. This reinforced expectations that interest rates would remain unchanged again at the next review on November 2nd.