Business Briefing: Inflation has peaked and many say is now declining.

The rate of inflation has started to edge down from its peak of 11.1% in October, ending the year at 10.5% and according to an interesting report from CBRE, there is an expectation that this gradual decline will continue over 2023 and 2024.

The report goes further to state that, "We expect GDP to fall by 0.8% in 2023. The economy will experience a moderate recession, as high inflation saps household spending power. Steeper taxes, less government spending, and higher interest rates will also weigh on businesses and consumers throughout the year. In early 2024, we expect the recovery to begin. The fall in inflation to 3.6% at that point will increase the purchasing power of households.

Most of the drop in inflation at the end of 2022 came from falling motor fuel prices, reflecting a sharp decrease in crude oil prices. Consumer goods prices also decreased notably, as international supply chain pressures eased. The previously tight labour market has started to cool. The unemployment rate increased to 3.7% in the three months to November, and notified job vacancies experienced their fifth consecutive quarterly fall. Average pay, despite growing strongly by 6.4% in the three months to November, did not keep up with inflation. Average inflation-adjusted pay fell by 2.7%, eating into consumers’ purchasing power."

It is common knowledge that UK consumers are cutting back on spending and business activity has contracted for the fifth consecutive month in November. Retail sales volumes fell by 1.0% in December, driven by falling purchases in common gift categories. The proportion of online retail continued its fall since pandemic peaks, dropping to 25.4% in December. For the whole of 2022, retail sales volumes fell by 3.0%, compared with 2021.

The labour market is expected to remain resilient, with unemployment peaking at 4.6% in Q4 2023 and then coming down to 3.8% by end-2025. A tight labour market and lower inflation will support increased consumer spending, give a boost to retail sales and kickstart the economic recovery. Having fallen by 0.8% in 2023, GDP is expected to grow by 1.7% in 2024 and by 2.8% in 2025.

At the same time, the purchasing managers’ index (PMI), a key measure of private sector health, was below 50 for the fourth consecutive month. This indicates that a majority of businesses had reported a contraction in spending. Shrinking household and business spending puts downward pressure on GDP. In the three months to November 2022, GDP fell by 0.3%, compared with the previous three months. This put the economy at 0.3% below its pre-COVID levels. In contrast, GDP in all other G7 economies had already exceeded pre-COVID levels by Q3 2022."

There are many predictions about the future and we are due to experience difficult times for the foreseeable future but there is a lot of positivity and resilience within the industry.