New Year always brings a stack of new predictions and data sets to plough through for the year ahead.
Here the IOE&IT Daily Update rounds up some of the most relevant projections for the world of international trade.
Manufacturing slump
British manufacturers go into the New Year on the back of the sharpest fall in activity since the 2008-9 recession, as the S&P Global/CIPS UK manufacturing Purchasing Managers’ Index (PMI) sank to 45.3 in December from 46.5 the previous month.
The reading was stronger than an initial estimate of 44.7 released last month, but well below the 47.8 reported in the equivalent eurozone survey. Any reading below 50 indicates economic shrinkage.
Manufacturers were slightly more upbeat about the year ahead, with expectations of future output at a five-month high as supply chain difficulties became less acute and inflation pressures fell to their lowest level since late 2020.
“The main driver of lost export contracts was weak global economic conditions, while there was also mention of Brexit-related issues, such as shipping delays and higher costs, leading some EU clients to source products elsewhere,” S&P Global reports.
According to Reuters, the figures are in line with a gloomy prediction by manufacturing trade body Make UK that output in the sector would fall 3.2% in 2023.
Data from the Office of National Statistics (ONS) put UK factory output in October 4.6% lower than last year.
UK recession
A majority of 101 respondents to the FT annual poll of UK-based economists said the country will face one of the worst recessions and weakest recoveries in the G7 in 2023.
They predict that the inflationary shock caused by the coronavirus pandemic and the Ukraine war will persist for longer in the UK than elsewhere, forcing the Bank of England to keep interest rates high and the government to run a tight fiscal policy.
More than four-fifths of economists polled expected the UK to lag behind other G7 countries, with GDP shrinking for most, or perhaps all, of 2023.
As previously covered in the Daily Update, the IMF has predicted that the three major growth engines of the global economy – China, the US and Europe – will all face recessionary pressure this year.
However, forecasts compiled by Consensus Economics for the FT show UK GDP shrinking by 1% in 2023, compared with a contraction of just 0.1% for the eurozone, and growth of 0.25% in the US.
Worldwide woes
Bloomberg has gathered the thoughts of more than 500 Wall Street pundits on what to expect in 2023, and it is unsurprisingly downbeat.
Barclays Capital says 2023 will go down as one of the worst for the world economy in four decades. Ned Davis Research puts the odds of a severe global downturn at 65%, while Fidelity International predicts that a hard landing looks unavoidable.
Most forecasters think the economic impacts of Covid are largely behind us, with the exception of how China’s decision to re-open plays out, with the outcome of this decision having potentially profound consequences for the world’s investment and consumption cycle.
Energy bills
The latest analysis from energy consultants Cornwall Insight claims that household energy bills could drop below £3,000 per year next winter if gas prices continue to fall, reports City AM.
Cornwall said a drop-off in gas prices will help ease pressure on household bills, but the benefits will not be felt until the second half of this year, when it expects the energy price cap to drop to around £2,800.
The current energy price cap is £4,279 per year and will be reviewed again in March for the April-to-June window. But domestic bill payers will be protected by the government’s Energy Price Guarantee until the end of March 2024.
Robert Buckley, head of relationship development at Cornwall Insight, expects energy bills for businesses to come down more quickly than households, because companies are not eligible for the price cap and instead rely on short-to-medium term contracts.
“These lower spot prices will come through quicker for businesses. It may be some businesses which are buying on very short-term energy contracts which see quite a lot of benefit through to the end of the winter,” he said.
Retail sales
Double digit inflation saw UK Christmas grocery sales hit a new high of £12.8bn for the 12 weeks to 25 December, reports Kantar.
Sales were up by 7.6% for the quarter with year-on-year growth for December of 9.4% as monthly grocery sales were up by £1.1bn in December.
Although there was some increase in volume, the hike can be attributed mainly to the fact that grocery inflation remains high at 14.4% last month, even though this was slightly down on November’s 14.6% figure according to the BRC.
In a speech on Wednesday, prime minister Rishi Sunak stated that halving inflation this year was one of his five ‘promises’.
Ahead of Christmas, the ONS noted that grocery was the only sector set for an increase in sales as shoppers remained cautious about spending freely, reports Sky News.
Economists had expected to see growth of 0.3%, given reports of healthy spending during Black Friday.
However, there was a negative performance across the board in every major retail category except for food during the month.
