Capital Economics: About 60% of the Impact of Interest Rate Hikes has not Yet Appeared

Capital Economics economist Ashley Webb said in a report that the UK economy has avoided recession in early 2023, but rising interest rates will still cause pain.

He said that with about 60% of the drag on the economy from the Bank of England‘s interest rate hikes yet to be felt, the UK economy could slip into recession in the second half of this year, with an overall decline in GDP of about 0.5%.

Looking ahead, real household income is unlikely to increase significantly this year as government support measures are phased out, and with households’ real savings stocks well below pre-pandemic trend levels, their support for spending is likely to weaken.