Economic outlook brighter at start of 2023

We hope your 2023 has got off to a good start. 

The early data suggests that the economic situation continues to look brighter than it did for much of last year.

The UK inflation rate eased in December from 10.7% to 10.5% with lower prices for petrol and clothing pushing down the headline rate.

While most experts expect that inflation will continue to fall to a level nearer 5% by the end of 2023, the immediate continued upward pressure means that the financial markets anticipate the Bank of England raising its main interest rate to 4% later this week.

There was also some positive news coming out of the United States where the country’s economy expanded by 2.9% from October to December, ending 2022 with momentum despite the pressure of high interest rates and the ongoing expectation of a recession.

The financial markets have similarly been kinder of late, although you would typically expect to see a bounce back in this area ahead of any sustained economic recovery.

In terms of the UK economy, the next important date in the diary is Chancellor Jeremy Hunt’s Budget which will take place on March 15 and will be accompanied by a forecast from the Office for Budget Responsibility.

The expectation is that Hunt will deliver a slimmed down Budget after the drama leading up to November’s Autumn Statement and the ensuing tax rises and spending cuts in a bid for stability and reassurance. 

The economic climate, while showing some small signs of moving in the right direction, provides the Chancellor with few if any opportunities to pull rabbits out of the hat. 

The Government will instead be hoping to buy itself more time to demonstrate a sustained economic recovery before it hopes to be able to offer some tax giveaways in the 2024 Budget which is likely to come in the final stages of the run-up to the next General Election.

In terms of immediate client opportunities as we head towards the end of the financial year, please do consider pension contributions and ISA allowances and any capital gains that can be realised before the tax allowance is cut from the current level of £12,300 to £6,000 in April 2023 and £3,000 from April 2024.

As ever, please do get in touch with the team at Phillip Bates & Co Financial Services if you would like to speak to us about these or any other matters. Similarly, as many clients know, we are always happy to arrange meetings with any family members or friends who would like to take some financial guidance.