HSBC predicts difficult year but with slow improvement

On 10 January, HSBC's Head of Economics, Mark Beresford, published an economic commentary looking at a possible forecast for the next year.

It stated that 2023 is expected to be a difficult year for the UK, with struggles to cope with the resurgence of inflation and the impact of high gas and electricity prices on households and businesses.

However, progress has been made since the outbreak of the war in Ukraine in February 2022. Commodity prices have largely returned to pre-war levels, inflation has likely peaked, and the Bank of England is set to raise interest rates just once more. The UK has also recovered from the short-lived Truss/Kwarteng government in September and October 2022.

GDP in real terms is forecast to contract by around 1% in 2023, a milder recession than previous ones. While the economy is expected to start growing again later in 2023, it will not return to pre-Covid levels until 2024.

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The main reason for the recession is the squeeze on household spending power due to high gas and electricity prices and inflation outpacing pay growth. Inflation is expected to ease, but it may take at least three years to reach the government's target of 2%.

The retail and hospitality sectors will face challenges, as will smaller businesses hit by increased energy bills. However, some activities such as travel and leisure may be less affected as some people continue to have savings from the pandemic.

House prices are expected to continue to fall in 2023, with a drop of around 5%, but this may be offset by the end of the "super deduction" investment incentive.

Exporters may also face challenges as the rest of the world is also facing economic difficulties. Many businesses are also cautious about investing in capital projects due to ongoing cost containment efforts and uncertainties in the present environment.

The full report can be found here. Mark Berrisford-Smith will be speaking at The Business Magazine's 'Building Business Resilience' event later this year, full details of which will be announced in due course.

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