Cliff Notes
- Renewed data indicates a significant decline in consumer confidence and business health in the UK, with GfK’s confidence barometer suffering a drop to -23 amidst rising economic worries.
- Official reports reveal a 13% increase in firms experiencing critical financial distress and a 9% rise in company insolvencies, reinforcing concerns of a slowing Economy amid persistent inflation.
- Economists anticipate that these deteriorating conditions may prompt the Bank of England to consider interest rate cuts as early as May, with a potential half-point reduction on the table despite inflationary pressures.
Rate cut speculation lights up as economic outlook darkens
There is growing speculation of a pick up in the pace of Bank of England interest rate cuts as the outlook for the UK economy darkens, with fresh data suggesting a renewed slump in consumer confidence and business health.
While the Office for National Statistics (ONS) reported a tentative 0.4% rise in retail sales volumes during March, a closely-watched measure of the consumer mood, covering the current month, fell back sharply.
GfK’s confidence barometer showed a four point decline to -23, with worries about the economy and personal finances driving that fall.
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At the same, a respected reading of corporate health by the consultancy Begbies Traynor reported a 13% leap in the number of firms facing “critical” financial distress.
Its report was published hours before official data showed a 9% rise in company insolvencies across England and Wales in March compared to the same month a year ago.
It all bolsters other recent evidence that the economy is slowing in the face of US protectionism and rising bills for both businesses and households alike – with the challenges only growing since the start of the month.
But it has also led both economists and financial markets to agree that the gloomier outlook makes it easier for the Bank of England to accelerate interest rate reductions, starting next month, despite forecasts of a big lift to inflation ahead.
A weakening economy and rising inflation
The UK was among the major economies hardest hit by a series of growth downgrades issued by the International Monetary Fund (IMF) this week.
It was not a message the Chancellor would have wished to hear on her visit to Washington for the body’s spring meetings, given the government’s stated priority of growing the economy.