Top City investor: Rate hikes and gilt spike WILL throw UK economy into recession
A top Square Mile economist has warned that further rate hikes and the increasing price of government debt means the UK will struggle to avoid recession.
Speaking to the BBC’s Today programme this morning, Abrdn’s investment director Luke Hickmore said that incomes were set to come “under a lot of pressure” after the Square Mile upped its consensus forecast on interest rates.
Whilst many as recently as a month ago had not expected the Bank to push the rate beyond 5 per cent, some now expect an additional 50 basis points on top as a result of stickier than expected ‘core’ inflation.
Though the headline inflation number fell in April, core inflation was at its highest since the early 1990s. The Bank of England has been criticised for over-confidence at the beginning of this inflationary cycle, when it was warned a failure to move quickly would likely result in rates staying higher for longer.
Hickmore told the BBC: “This higher interest rate profile from the Bank of England, higher mortgage rates and still high inflation (means) it is going to be increasingly hard to avoid a recession.”
The Abrdn exec’s prediction swims slightly against the tide, with the IMF earlier this week predicting the UK would in fact avoid a technical recession – two consecutive quarters of negative economic growth.
However the surprise inflation readout earlier this week has spooked a number of City number-crunchers.
Hickmore said he feared recession at the end of this, or the start of next year.
The stickiness in core inflation suggests at least a fraction of that wage/price setting dynamic is gathering momentum.
This morning the Chancellor backed moves by the Bank of England to tamper inflation.
“I have to do something else, which is to make sure the decisions that I take as Chancellor, very difficult decisions to balance the books so that the markets, the world, can see that Britain is a country that pays its way – all these things mean that monetary policy at the Bank of England (and) fiscal policy by the Chancellor are aligned,” he told Sky News.