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What's happening to the UK economy?

  • To understand the lagged effect of monetary policy
  • To be able to explain the reasons the UK economy has proved resilient so far
  • To understand the challenges facing the UK economy
CPD
Approx.30min

Gimber’s view is that such a rate of decline in the trend rate of growth limits the BoE’s options when it comes to any future stimulus, as the level of growth that can be achieved without causing inflation is low. 

Konstantinos Venetis, senior economist at TS Lombard, says the UK’s economic resilience has largely been a function of a “virtuous circle” between businesses and consumers, with the former able to pay higher wages because consumers were willing to pay higher prices.

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But he says more recent economic data points to a breaking down of this, with the average number of hours worked in the economy now below pre-pandemic levels.

This would be expected to lead to a drop in wage growth, and to sharply lower inflation. 

He says the BoE, in its most recent commentary on rates, played down the significance of recent wage data, signalling that other data sets indicated labour market conditions are weakening, and for this reason did not raise interest rates at its most recent meeting. 

Some signs emerging from the US point to that economy achieving a soft landing with lower inflation and no recession.

If such an outcome can happen in the UK over the course of the coming year, it will have a major impact on the lives of advisers and their clients, potentially for many years to come.

David Thorpe is special projects editor at FTAdviser

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. What period of time is generally assumed to be the lag between rates rising and the impact being felt on the real economy?

  2. What "transition" does Lyons say is happening in the economy?

  3. What is the participation rate in an economy?

  4. According to Gimber, what proportion of UK mortgage holders are on variable rate deals?

  5. What does Lyons say is the trend rate of growth in the UK right now?

  6. Why does Miller say inflation will remain higher in the UK than in peer economies?

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You should now know…

  • To understand the lagged effect of monetary policy
  • To be able to explain the reasons the UK economy has proved resilient so far
  • To understand the challenges facing the UK economy

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