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UK GDP, retail sales and the base rate

ended 22. December 2023

The ONS has just announced that UK gross domestic product (GDP) is estimated to have fallen by 0.1% in Quarter 3 (July to Sept) 2023, revised down from a first estimate of no growth. In short, the economy is on the brink of recession. To make matters worse, UK GDP is now estimated to have shown no growth in Quarter 2 (Apr to June) 2023, revised down from a previously estimated increase of 0.2%. You can read the full report >> here <<. Meanwhile, retail sales volumes are estimated to have increased by 1.3% in November 2023, from no growth (revised from a fall of 0.3%) in October 2023. Retailers said earlier Black Friday sales and wider discounting contributed to the increase in non-food store sales volumes of 2.3% in November 2023. However, sales volumes fell by 0.8% in the three months to November 2023 when compared with the previous three months. Full report >> here <<. Newspage asked experts for their views and if this could see the Bank of England cut earlier than anticipated in 2024.

10 responses from the Newspage community

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Bob Singh
Founder at Chess Mortgages
It seems the Grinches in the MPC have been hard at work this year keeping rates on hold for too long. With UK plc teetering on the edge of a recession, can the MPC still afford to play the brinkmanship game? The rate decisions have been based on data but it’s about time they based their decisions on some economic forecasting. The writing is on the wall and rates must drop sooner than planned. The money markets are leading the way and the tail may now need to wag the dog. Rate cuts are sorely needed in Q1 to boost the economy and help hard-pressed mortgage borrowers.
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Riz Malik
Independent Financial Adviser at R3 Wealth
I hope the Monetary Policy Committee undertake some serious reflection over the festive period, especially those members who wanted to increase rates at their last meeting. The GDP data shows how out of touch they are. The Bank of England was criticised for being too slow with rate increases, but being too slow with rate cuts can be equally harmful, especially with an economy that is in serious trouble as today's GDP clearly shows. Those in charge of managing the economy should feel embarrassed. For borrowers, negative growth in the third quarter could bring a base rate cut sooner than anticipated in 2024, which will reduce the pressure on those with a mortgage. Every cloud.
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Michelle Lawson
Director at Lawson Financial
This worrying GDP data is a sign that the Bank of England may have hiked too much too quickly and suggests a base rate cut could come sooner rather than later in 2024. This is good news for mortgage holders as already falling rates are likely to fall further. Brace for more mortgage rate cuts in January.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Such bad news for the economy could translate into good news for borrowers. These revised GDP figures show the strained breaths of an economy being tightly strangled by the Bank of England over the past 12 months, bringing many businesses to their knees. That's especially the case in the retail sector. This week's inflation data, and the fact the next base rate review is not until February, means the January inflation data will be critical in where the economy and mortgage rates go next. In the meantime, there is still some quiet confidence we have turned the corner on the rate front. The Bank of England is once again at risk of being seriously behind the curve.
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Rohit Kohli
Director at The Mortgage Stop
The GDP data is sad news, but not surprising given the impact of rate hikes on the economy. The challenge now is to pick the right moment to ease back so as not to drive the country into a deep recession. The worry is how slow the Bank of England was to raise rates. Will they be just as slow to realise when the right time is to start cutting and initiate the recovery? Given that three members of of the MPC still feel that rates needed to be raised further, the evidence indicates that they could be.
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Wes Wilkes
CEO at IronMarket Wealth
The ONS figures today are not surprising but are concerning. The Bank of England must not be as slow to react to these numbers as they were to act on inflation. Such dire growth figures may pull forward the expected rate cuts in H2 2024 and we should see a change in rhetoric from policymakers as we enter the new year.
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Craig Fish
Director at Lodestone Mortgages
Those who voted for an increase in the base rate at the last meeting should be hanging their heads in shame, as this revised data clearly shows that the UK economy is in serious danger of heading into a recession. The last thing needed is an increase, and these numbers could result in a cut coming sooner rather than later, that is if the MPC doesn't repeat its mistakes. They were too slow to increase rates to tackle inflation, so let's hope they aren't too late to decrease rates when fighting off a recession.
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Justin Moy
Managing Director at EHF Mortgages
Worsening GDP figures and expectations are showing the frailty of the UK economy, and the effect of high interest rates on both home borrowers and businesses. As slow as the Bank of England were to tackle inflation, they need to react quickly in 2024 and bring forward their base rate cut plan. Recession may well be unavoidable but how quickly we react is now key for the sake of our economy.
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Darryl Dhoffer
Founder at The Mortgage Geezer
These recent revisions to UK GDP growth raise the spectre of recession and are very worrying. They will put Threadneedle Street under significant scrutiny. Public and market confidence in the Bank of England's ability to manage the economy is now at an all-time low. The calls for the Bank of England to cut interest rates to stimulate growth are bellowing, but they're falling on deaf ears. Raising rates further would be madness, and cuts are needed sooner rather than later.
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Graham Cox
Director at Bridging Hub
These revised lower GDP figures are deeply concerning, and reveal an economy virtually in recession already. This will be no great surprise to anyone and shows the Bank of England's base rate medicine is working. Despite inflation plummeting, my fear is Andrew Bailey will continue to overcook monetary policy and maintain rates too high for too long. A knee-jerk response to being slow to raise base rates back in 2021. The case for a base rate cut is becoming overwhelming.