Recession warning: Economic downturn likely in 2024 amid rising interest rates | Personal Finance | Finance

Experts are warning a recession in 2023 is on the horizon as the UK services sector took a hit in August.

Economies across both sides of the Atlantic have attempted to address the impact of rising inflation by hiking interest rates; a decision taken by both the Bank of England and Federal Reserve.

However, the UK economy is struggling under the weight of these rate rises with the all-important services sector falling into negative territory last month.

The services purchasing managers’ index (PMI) dropped to 49.5 for August, down from 51.5 in July.

Service providers usually cited caution among clients and a lack of business opportunities which was linked to recent interest rate rises.

A recession is typically described as happening when a country experiences two-quarters of negative economic growth.

While the US and the UK economies have so far avoided this fate, these latest figures suggest the latter is still at risk of an economic downturn.

Furthermore, other G7 economies such as Germany have fallen into recession this year amid high inflation and rate increases.

Carsten Brzeski, ING’s global head of macro and chief economist, shared his predictions for the world economy going into next year.

He explained: “We still predict very subdued growth to recessions in many economies for the second half of the year and the start of 2024.

“The stuttering of the Chinese economy seems to be more than only a temporary blip; it seems to be transitioning towards a weaker growth path as the real estate sector, high debt, and the ‘de-risking’ strategy of the EU and the US all continue to weigh on the country’s growth outlook.”

Despite this, the economist did cite that inflation is likely to continue its downward trend internationally thanks to the action of central banks, such as the Bank of England and the Federal Reserve.

Recently, the Consumer Price Rate of inflation for the 12 months to July 2023 eased to 6.8 percent.

Comparatively, the US has seen its CPI inflation rate drop even quicker to 3.2 percent last month but this still remains higher than the Fed’s two percent target.

Mr Brezeski added: “This downbeat growth story does have an upbeat consequence; inflationary pressure should ease further. It’s probably not going to be enough to bring inflation rates back to central banks’ targets, but they should be low enough to see the peak in policy rate hikes.

“Central bankers would be crazy to call an end to those hikes officially; they don’t want to add to speculation about when the first cuts might come, thereby pushing the yield further into inversion.”

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