UK is at high risk of a serious economic downturn

ByYoko Villarin

December 21, 2023

As one of the most successful bond investors, Daniel Ivascyn’s foresight when it comes to macro-economic trends and government bonds is scarcely wrong. So when he told the Financial Times this week that the UK is at high risk of a serious economic downturn, it triggered another wave of worry for the nation.

More hard-landing risks in UK

Only a few months after the UK took pride in successfully cutting inflation in half, chief investment officer of PIMCO Daniel Ivascyn has issued another dire warning, saying that the nation may tumble down another rabbit hole the following year: a recession.

“We do think there’s potentially more hard landing risks,” Ivascyn told the Financial Times.

He also mentioned that, because this is a plausible situation shortly, he has been placing higher bets on UK government bonds relative to US government bonds. He also added that British consumers are ‘feeling the brunt’ of higher interest rates than their US counterparts.

UK’s Economic Downturn

UK’s Gross Domestic Product (GDP), a key indicator of a nation’s economic well-being, was reported by the Office for National Statistics to have shown no growth in the three months to October 2023, which is in stark contrast to its 0.2% growth in the three months to July 2023.

The monthly GDP was also estimated to have fallen by 0.3% in October 2023, following a growth of 0.2% in September 2023.

In this scenario, Ivascyn’s predictions for the following year might materialize if the data for the fourth quarter of 2023 show that the GDP either stays stagnant or, worse, declines.

The GDP report for 2023’s fourth quarter will be released around mid-February next year.

What’s stopping the growth of the UK’s economy?

The BBC reports that cutting inflation in half made it extremely difficult for the economy to expand, as the Bank of England had to hike interest rates fourteen times to keep prices from increasing too rapidly. The interest rate is 5.25% at the moment.

Accordingly, if mortgage interest rates rise, people will have less money and be less inclined to borrow and spend it, which increases the likelihood that businesses will fail and the economy will contract.