Top forecaster says UK economy has reasons to be cheerful with stagnation to fall away
The UK economy could be on the mend after it fell into a shallow recession last year as it battled high inflation and interest rates.
According to forecaster Oxford Economics, the UK economy has started to show signs of significant growth, which could indicate it’s set to break away from the stagnation of the past two years.
“This week’s first batch of business surveys for April provided cause for optimism that the recovery has continued into the second quarter,” wrote Andrew Goodwin, chief UK economist at Oxford Economics.
He cited the flash S&P Global survey published last week. It reported a rise in the composite purchasing managers’ index (PMI), a key indicator of the overall health of an economy, to an 11-month high of 54.0, after an uptick in services activity.
Based on these figures, the UK economy could be on the mend after it fell into a shallow recession in the second half of last year, battling persistent inflation and high interest rates.
Oxford Economics also said labour market conditions are gradually loosening, leading to a slowdown in pay growth and potentially supporting a rate cut.
Recent noise from the Monetary Policy Committee has suggested there is uncertainty over the timing of a rate cut, with either June or August being considered.
There has also been talk of a possible further cut to employee national insurance contributions, squeezed in just before the general election. However, Oxford Economics deemed that scenario “relatively unlikely” due to fiscal constraints.
“Theoretically, the Chancellor could create room by gaming the rules and assuming even greater spending restraint,” Goodwin explained.
“But the current plans already look virtually impossible to deliver, and the government exacerbated that problem this week by doubling down on its existing pledge to increase defence spending,” he added.
Looking ahead to next week, Oxford Economics expects a slowdown in mortgage approvals due to recent increases in quoted mortgage rates in February and March. It has projected mortgage approvals for March to reach around 60,800.
Final April PMI results are expected to closely match the flash reports of manufacturing PMI at 48.7, services PMI at 54.9, and composite PMI at 54.0.
