46. Weekly Newsletter
UK Recession Looms
During Q3 of 2022 the UK economy contracted by 0.2% as rising costs impacted businesses and households. The Bank of England (BoE) forecasts Q4 to also be in decline which would then tip the UK into a “very challenging” two-year recession. This would mark the longest recession since records officially began in the 1920s and unemployment is expected to double to 6.5%. However, the UK remains the only developed economy with employment still below pre-pandemic levels at the beginning of 2023. Additionally, the Financial Times is reporting that that the sharp drop in German output will drag the EU into recession over the Winter too.
The decline in output will further challenge the Chancellor’s Budget (due this week on 17th November) where a possible £60bn gap in spending is being targeted. It is expected that around half of the £60bn will be saved through spending cuts. However, delays in social care reforms, a freeze in income tax thresholds and a ‘stealth raid’ (focused on inheritance tax) are also expected to support the government finances.
Newspapers & Politics
The UK’s front page news cycle over the last seven days has focused upon a wide mix of stories covering migrant crossings in the English Channel, the looming UK recession, NHS struggles and the upcoming government Budget. British newspapers also looked into the closely fought US Midterms and the long-term financial cost of PM Truss’ mini-Budget which The Observer estimated cost the UK £30bn. Some of the newspaper front pages over the last week were:
- The Times: New pact with France to stem flow of migrants
- Sunday Express: Rishi Revives Thatcherism To Rescue UK
- The Sunday Telegraph: Ten-point migration plan to end ‘Hotel Britain’
- The Observer: Revealed- the £30bn cost of disastrous Truss Budget
- The Independent: Sunak delays growth plan as UK heads for recession
- FT Weekend: Crypto world rocked by fall of FTX empire
- The Independent: Unions battle Government in new winter of discontent
- Daily Mail: Time To End Eco Mob Rule, Police Are Told (by Home Secretary)
- The Daily Telegraph: Nurses to stage first national walkout
The UK’s political focus this week was dominated by the number of illegal English Channel crossings this year (now totalling over 40,000) and the upcoming Autumn Budget in which the Chancellor has declared that ‘everyone will have to pay more tax’. On Monday (14th November) the UK agreed to pay France £8m more per year to increase patrols on the UK-French border with greater co-operation also promised. PM Sunak declared, whilst at the G20 summit in Bali, that there is no “single thing” to “fix” the Channel crossings but that he was “confident we can bring the numbers down”.
New Housing Demand Declines
Housing developers have warned that demand for new housing has fallen by as much as 50% to levels not seen since the start of the pandemic. Demand has entered negative levels across all regions of the country partly due to the Bank of England being expected to raise interest rates to as high as 4.6% next summer according to the markets. The head of UK residential research at Knight Frank said October was “undoubtedly a bad month for the UK property market” and that “house prices have now peaked”.
The major estate agent Savills has forecast that UK house prices will contract by 10% in 2023. Unusually, prices are falling even as the stock of housing has fallen to the lowest levels on record. Although the Royal Institution of Chartered Surveyors forecasts that rents will rise 4% next year as a result of the imbalance between high tenant demand and the limited supply of housing to let.