Vanguard's Economic and Market Overview
United Kingdom
3.5% to 4%
Economic growth
Our 2022 growth forecast is down sharply from 5.5% at
the start of the year. Higher commodities prices, tighter
financial conditions, and diminished consumer and
business confidence mean that risks are pointedly to the
downside. Fiscal policy measures and anticipated wage
increases are unlikely to prevent a drop in real incomes.
-10%
Headline inflation
Energy prices are likely to drive year-on-year inflation
briefly past 10% in the fourth quarter as a higher price cap
lets suppliers charge more. We foresee year-end headline
inflation about three times what we had expected at the
start of the year, before the war in Ukraine sent energy
and commodities prices soaring.
Real wage growth
0%
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Real incomes under pressure
A sharp decline in real (after-inflation) earnings in 2022
is likely to weigh on economic growth. We foresee the
trend moderating alongside headline inflation in 2023
en route to a return to equilibrium over the longer term.
3%
1%
...
2%
2.25% to 2.5%
Monetary policy
We believe the Bank of England will raise the bank rate by
an additional 1.25 percentage points, toward our estimate of
a 2.5% neutral rate, over the next 12 months.* The bank has
signaled rate hikes potentially larger than 25 basis points
depending on the economic and inflationary outlook.
~4%
Unemployment rate
Unemployment near a 50-year low amid record job
vacancies suggests that the labor market will remain
strong the rest of the year even as the economy slows.
The push-pull of wage growth, inflation, and economic
activity will be important as the Bank of England
considers appropriate monetary policy levels.
*The neutral rate is the theoretical interest rate at which monetary policy neither stimulates nor restricts an economy.
Notes: Figures related to economic growth, inflation, monetary policy, and unemployment rate are Vanguard forecasts for the end of 2022.
Growth and inflation are comparisons with year-end 2021; monetary policy and unemployment rate are absolute levels.
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-1%
-2%
-3%
2021
2022
2023
2030
Notes: Real wage growth is calculated as the year-on-year
percentage change in average nominal weekly earnings minus the
year-on-year percentage change in the headline inflation rate. The
figure for 2022 reflects actual data and forecasts using proprietary
indicators. The figures for 2023 and 2030 are Vanguard forecasts.
Sources: Vanguard calculations, based on data from Bloomberg
and Macrobond, as of June 27, 2022.
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