Economic Review of May 2023

Our monthly economic review is intended to provide background to recent developments in investment markets as well as to give an indication of how some key issues could impact in the future.

It is not intended that individual investment decisions should be taken based on this information; we are always ready to discuss your individual requirements. We hope you will find this review to be of interest.

UK growth forecasts upgraded

Revised projections released last month by both the Bank of England (BoE) and International Monetary
Fund (IMF) suggest the UK economy is now set to avoid recession this year.

The BoE’s latest forecast predicts the economy will grow by 0.25% across the whole of 2023, a significant upgrade from February’s prediction of a 0.5% contraction.
This improved outlook reflects a number of factors, including stronger than anticipated global growth, lower energy prices and the fiscal support announced by the Chancellor in his Spring Budget.

Updated IMF figures also show the UKis now unlikely to enter recession, withthe international soothsayer predicting agrowth rate of 0.4% for 2023; in comparison,its previous forecast had suggested theeconomy would contract by 0.3% over thecourse of this year. The IMF said growthwould be helped by ‘resilient demand ‘as wellas falling energy prices and praised the UKauthorities for taking ‘decisive and responsiblesteps in recent months.’

The latest gross domestic product (GDP)figures published by the Office for NationalStatistics (ONS), however, highlight howfragile the recovery remains with growthstill sluggish. Although GDP across the firstthree months of 2023 did edge up by 0.1%,a similar tepid pace as achieved duringthe final quarter of last year, monthly data revealed an unexpectedly sharp drop in output during March, with GDP actually declining by 0.3% during the month.

Recently released data from the closely watched S&P Global/CIPS UK Purchasing Managers’ Index (PMI), though, does suggest growth has picked up in the second quarter.
May’s preliminary headline reading came in at 53.9, lower than April’s one-year high of 54.9, but comfortably above the 50 threshold that denotes growth in private sector output. Indeed, S&P Global noted that their PMI readings were consistent with ‘GDP rising 0.4% in the second quarter.’