UK economic update Autumn 2023

Sunny view of the facade of the Bank of England building and historic Royal Exchange under bright blue sky in The City financial centre of London, UK

Stronger signals that interest rates are nearing their peaks

The UK economy has avoided recession so far, but growth is minimal. GDP rose by just 0.2% in the three months to June. However, some are pointing to this weak economic performance to suggest that the rapid rise in interest rates over the last 18 months is starting to have an effect – especially as inflation continues to slide back from the peaks hit late last year.

UK inflation - Cluttons commercial market update autumn 2023

Official inflation data showed that the CPI measure fell back to 6.8% in July, down from a peak of 11.1% in October last year. Core inflation, which strips out food and energy costs, is not falling however, causing more caution about the how entrenched rising prices are.

The Bank of England’s MPC has raised the base at nearly every opportunity it has had had over the last 18 months as it has moved to tackle inflation, but recent comments from the Bank of England Governor suggest that the base rate may be nearing a peak. But the Governor also indicated that rates could stay higher for longer. In other words, falling inflation will not necessarily be quickly followed by a falling base rate. The central bank will want to make sure that inflation is firmly under control before it makes any such moves.

Even so, the Governor’s comments were enough the trim gilt rates. We expect the base rate to fall back in 2024.

commercial market update autumn 2023 - forecast interest rates

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Gráinne Gilmore

Director of research & insights

T +44 (0) 20 7647 7142

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