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Date: 6 January 2023

Author: Lee Merrifield

A recap of 2022

The final quarter of 2022 was especially challenging and will continue to impact the prospects for the property sector as we look towards 2023. Of course, with 2022 still fresh in our memories we’ll recall it was dominated by…

  1. The cost of living crisis
  2. Rising interest rate
  3. Rising inflation
  4. War in Eastern Europe
  5. Three Prime Ministers and one fateful mini-budget

But as we head into 2023 it would appear points 1-4 are all still very much front and centre and will continue to dominate our thinking at the start of the year. Additionally, the impact of the mini-budget will still be felt despite the subsequent row back by the new Chancellor.

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So, as we look into our crystal ball for 2023 these are the key economic themes that will shape 2023…

A prolonged but shallow recession

We’re not officially there, but we’re on the brink with expectations likely of a prolonged but shallow recession taking hold during 2023.

The Bank of England’s forecasts suggest the economy will only return to growth in Q3 2024 albeit the Office for Budget Responsibility suggests a recession lasting until Q4 2023 – such a difference is perhaps not unexpected in uncertain times but both agree we’ll be in the grip of a recession in 2023.

Inflation has peaked at a lower rate than expected

The UK inflation rate began 2022 at 5.5% and finished the year at 10.7%.

The expectation is that inflation has now peaked – and lower than the originally projected peak of 14% thanks to the Government’s energy price guarantee.

The rate is now expected to gradually fall during 2023 but it will remain well above the Bank of England’s target rate of 2% with the CBI forecasting a rate of 3.9% by the end of 2023.

House Prices to ease

As a result of the base rate rises introduced to curb inflation, the inevitable consequence is that house prices will ease in 2023 as the impact of rising mortgage costs allied to the general cost of living issues continue to weigh heavily on household finances. The Office for Budget Responsibility expects house prices to drop by 9% between the end of 2022 and Q3 2023 whilst Savills are predicting a 10% fall …wiping off the bulk of the post Covid price rises.

Unemployment will rise

As the economy enters recession it’s no surprise that most economists expect unemployment to rise as weaker spending and demand takes hold of the economy.

The result is that the unemployment rate is likely to rise from its current rate of 3.6% to peak at 5% by the end of 2023.

But, what does this mean for the property industry?

Whilst the above paints a fairly gloomy economic picture for 2023 as ever there will be opportunities for savvy property investors and developers and in our next blog we’ll focus on how these indicators will impact the property market this year and where the opportunities lie.

Read our blog on the property industry outlook for 2023

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