Industry figurehead believes the UK should prepare for the worst
Predicting future economic growth is a difficult task, with many considerations needing to be taken into account. Nevertheless, as an industry figurehead, Jeff Knight (pictured), director at The Mortgage Marketing Forum, is as well placed as anyone to offer his thoughts on the likelihood of a crash.
So, just how likely is a UK recession?
Will the UK enter a recession?
Knight said when looking at the Bank of England’s monetary policy report, his take away on a UK recession is ‘prepare for the worst’.
“This is because I saw different economists’ GDP predictions for the 12 months ahead… the average of all respondents was 0.6%,” he said. Knight added that there was also a report by the Purchasing Managers Index (PMI) showing that in September, private sector output fell for the second month running, which some are suggesting was the tipping point for the Bank of England holding the interest rate recently.
“Output is needed for economic growth, and the UK economy currently feels like the ending of The Italian Job, with it balancing on the edge of a cliff,” he said.
There are so many variables, Knight said, that can tip the balance either to reasonable GDP growth or a recession, which was the outcome the last time the UK had high inflation tackled by raising interest rates. As such, Knight said there is a lot of apprehension about the market and the economy among brokers at present.
“Many brokers are expecting more pain to come, as they have seen the impact of rising interest rates on clients’ spending powers,” he said.
Knight believes the pain of interest rates is not over, highlighting that the BBC reported some 400,000 borrowers are on fixed-rate deals due to finish before the end of this year, with 1.6 million on deals expiring next year. This will have an impact on the economic growth of the UK, Knight said, within the next 12 months.
Another influencing factor on the likelihood of a recession, Knight said, is that in order to retain staff, employers had been increasing wages – however, he believes this has started to decline as market confidence gradually slows.
“This could prompt even more industrial action, which again impacts output - and if wage growth slows, pockets get pinched even more,” he said.
What could prevent a recession?
“There will be a general election at the latest by January 2025; being a cynic, I doubt the current government will want to enter an election race on the back of a recession,” he said.
So, Knight believes that some stimulus could be introduced, which is likely to appear through tax cuts or some investment into the housing market.
“Despite all of this, we could see inflation drop unexpectedly to the target and we all sleep happy; however, no-one knows what the future brings - we just have to plan for the worst and hope that only the doors get blown off,” he concluded.
Do you believe that a recession in the UK is looming? Let us know in the comment section below.