The UK faces an economic balancing act, but is there cause for optimism?

Experts examine the difficult market conditions facing consumers

The UK faces an economic balancing act, but is there cause for optimism?

The UK has certainly endured a bumpy, economic ride in recent times; the worries over the cost of energy, alongside the cost of everyday essentials and the consequent hikes in interest rates, in the fallout of the mini budget. 

“Although it would be premature to suggest that the difficult economic conditions have disappeared, consumers may at least be feeling that things ‘could be worse’ and that the future could bring some optimism,” said David Hollingworth (pictured left), associate director of communications at L&C Mortgages, Hollingworth.

Improving optimism

Hollingworth pointed out that the UK had avoiding technical recession and forecasts have been improving slightly. 

“The International Monetary Fund revised its forecast to predict a contraction in the UK economy at half its original expectation,” he said.

Although the UK was trailing other major economies, Hollingworth remarked, there was room for optimism. Borrowers would now be adjusting to the mortgage rates on offer, and while these were higher than in recent years, the outlook was better than it seemed in October. 

“The base rate is anticipated to be at least nearing its peak and inflation is expected to ease back, which could ultimately see interest rates following suit,” Hollingworth said.

He believed that could in turn see a return to a healthier purchase market sooner than might previously have been anticipated, if buyers’ and sellers’ confidence improved. 

Hollingworth said mortgage advisers would certainly play a big part in helping borrowers make sense of what was affordable. 

“We have good availability of mortgage deals at present, and the fact that Skipton suggested recently that it continues to work on new ways to help those caught in a cycle of high rental payments, is an encouraging sign that lenders remain committed to not just maintaining, but also developing products,” he added.

The financial outlook remained difficult for a lot of households, so Hollingworth believed it would be foolish to expect things to turn round instantly, he said, but the continued tight labour market and improved mortgage rates could see a better year ahead than might have been possible to envisage at the end of 2022.

Balancing act

Jeff Knight (pictured right), strategic marketing consultant at Grey Matter Marketing Solutions commented:  “Looking at the UK economy reminds me of the ending of the original Italian Job, with the economy finely balanced over a cliff edge; it could go either way.”

While an eventual recovery is expected, Knight said inflation was the key driver, which he believed would begin to fall later this year, however not to the level which the Bank of England had targeted.

“Therefore, do not expect a big reversal of interest rates any time soon; until earnings grow significantly, affordability will be tighter and there will be a tough market for several years to come,” he said.

To fast-track growth, Knight said inflation needed to fall quicker and consumer confidence to rise, which he believed could be encouraged by some fiscal stimulus.

“We could encourage housebuilders to build and get some investment into creating more energy efficient homes now; this could help stimulate GDP growth and solve many environmental problems too,” Knight said.

As it stood, Knight said economic growth would be slow without some intervention, and he believed the property market was a great solution.

“Perhaps this will happen in the run up to the next General Election, to get consumer confidence high just in time,” Knight added.

Do you believe economic conditions will improve over the course of 2023? Let us know in the comment section below.