Economic deep dive - Q4 2022

Quarterly highlights:

• UK economy expected to enter a mild recession, with a 0.7% peak-to-trough fall in output
  In our latest forecast, we expect GDP to contract by 0.4% in 2023, as high inflation drags on household incomes and spending. The outlook improves in 2024, when we expect the economy to grow by 1.6%, as inflation falls and the squeeze on household incomes abates.
  
  
• CPI inflation looks set to fall over the next two years, while remaining above-target
  As base effects unwind, global price pressures fade, and a recession takes some of the heat out of price setting, we expect CPI inflation to fall back steadily from its October 2022 peak. Nevertheless, our forecast shows inflation still running above the Bank of England’s 2% target by the end of 2024.
  
  
• Labour market expected to loosen over the coming year
  Falling activity should weigh on hiring in 2023, but businesses’ experiences of labour shortages may lead them to retain staff to a greater degree than expected. We expect the unemployment rate to peak at 5% by the end of the year, an increase comparable to that seen over the COVID crisis, but much lower than during the 2008/9 financial crisis.