UK Economy – Current Outlook
The UK Economy grew faster than expected towards the end of 2021, with gross domestic output rising by 1.3% in Q4 and 7.3% over the year. Gross domestic product continued its bounce back in January 2022, increasing by 0.8% and surpassing pre-pandemic levels for the first time.
This economic uplift was also evident in the property market, with annual growth in house prices hitting 14.3% in February 2022, the strongest pace since November 2004. According to Halifax, the average house price in the UK has risen by £27,000 in the last twelve months, the biggest one year cash rise recorded in over 39 years of index history. In London in particular, prices continued to be pushed higher in March by robust demand, limited supply and a strong jobs market.
There is, however, a general consensus that surging inflation coupled with rising interest rates will result in a cooling off of the economy and property market in the coming months. According to Barret Kupelian, senior economist at PwC, UK households are ‘entering a period where they will face a very substantial hit to their living standards with a smaller savings buffer than initially anticipated.’ The conflict in Ukraine has exacerbated inflationary pressures further, with another 30% increase to the energy price cap expected in October 2022 alongside rising food and other commodity prices. To counter this, the Bank of England has already raised interest rates three times in four months – with further hikes expected if the rate of inflation holds.
In terms of outlook for the rest of the year, much will depend on how the conflict in Ukraine unfolds and the how the supply/demand dynamic for energy is managed. While GDP is still expected to grow by 3.8% in the year, in the absence of a positive resolution to the conflict and a pause to the rising cost of debt, we are unlikely to see growth levels similar to those of 2021.