63% chance of recession in next year

UK company finance directors are bracing for a recession and a doubling of interest rates in their most pessimistic outlook since 2008, according to a survey conducted by Deloitte. The consulting firm’s quarterly survey of executives at leading companies found respondents think there’s a 63% chance of recession in next year. An additional 86% expect the benchmark lending rate will surpass 2.5% by July 2023. Almost half expect inflation to remain above 3.5% in two years.
 
The findings are alarming because they indicate expectations about where inflation is headed are breaking away from the Bank of England’s 2% target. Policy makers led by Governor Andrew Bailey have said they’re prepared to act “forcefully” in raising interest rates to keep the outlook about prices anchored around their goal.
 
As a record 86% of CFOs expect inflation to top 2.5% in two years, up from 78% in the first quarter, the Bank of England forecasts inflation will hit 11% this year, and business leaders expect the sharpest monetary policy tightening since the 1980s.
 
However, companies remain optimistic about business productivity, increasing their investment in skills, assets and technology in the next three years. More than half of respondents expect business revenue to rise next year. A separate report from Lloyd Banking Group Plc found an increase in the number of UK firms reporting a growth in output, in spite of waning consumer demand. They also reported a softening in the pace of increase for input costs, reducing pressure on companies to raise their own prices.