2023 April Economic Review

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  • The global economy proved to be in better shape than expected, with the UK, the US and Europe showing more resilient growth against a difficult backdrop.
  • Global stock markets delivered positive returns despite a period of volatility in March.
  • Inflation rates around the world began to fall as energy prices receded, although it remained stubbornly high due to food shortages.

For quite some time now, we have communicated how high inflation, rising interest rates and slowing economic growth could push the UK and other countries into recession in 2023. So far this year, economic growth has proved more resilient than first expected at a global level, largely due to lower prices for energy and oil. Likewise, global stock markets delivered mainly positive performance over the past three months even though they experienced a bout of volatility in March as a result of the collapse of the Silicon Valley and Signature banks in the US and Credit Suisse in Switzerland.

Economic update

Going into 2023, there were plenty of predictions that the UK would enter a recession as a result of the triple threat of high inflation, rising interest rates and slower economic growth. So far this has not materialised. Figures from the Office for National Statistics showed that the UK economy grew by 0.1% in the three months to February, with an expansion of 0.4% in January and zero growth in February. This was not high growth by any means, but it was better than expected and it prompted Jeremy Hunt, the Chancellor of the Exchequer, to say that the UK’s economic outlook is “brighter than expected” and that the country is “set to avoid a recession”.

Of course, given that we have still not reached the midway of 2023, this remains to be seen and there are still plenty of headwinds affecting the economy: energy and oil prices have come down from the high levels seen in 2022, but the cost of living crisis caused by high inflation and rising interest rates has still not subsided. Inflation, as measured by the consumer price, continues to sit at higher level. In the 12 months to March 2023, it was measured at 10.1%, a small reduction on the 10.4% observed in February and the same as was measured in January. While inflation in other parts of the world has come down considerably over the past few months, it is proving much more stubborn in the UK as a result of higher costs for food and recreation services, even though costs for other major items, such as fuel and clothing, have fallen.

Somewhat counterintuitively, consumer confidence has rebounded from recent lows and is beginning to show improvement. The most recent reading of consumer attitudes, taken in March, showed confidence levels are now at their highest levels for a year, although they remain in negative territory as people continue to be concerned about the effect of inflation and interest rates on their finances.

Meanwhile, business activity in the UK has been expanding, but much of this came from the services sector, which includes technology, communications and financial companies. The manufacturing sector, on the other hand, continued to see subdued demand at the start of 2023 despite reduced supply chain disruptions, lower costs for materials and shorter backlogs. Critically, manufacturers have seen reduced demand not only from consumers, but also from companies that are choosing to hold less inventory in order to reduce costs. Lower foreign demand for UK manufactured goods from the US, Europe and China also contributed to weakness in the sector.

With inflation continuing to sit at high levels and the economy performing better than expected, the Bank of England raised interest rates on two occasions during the past three months, bringing its official bank rate to 4.25%.

Market commentary

On average, global stock markets delivered positive returns over the past three months, although this period was not without some volatility. Equity markets were strong to start the year as falling inflation and the prospect that central banks were likely to begin cutting interest rates later in the year. However, both equities and bonds began to weaken when strong economic data and persistently high core inflation (the long-term trend in prices) meant that interest rates were likely to stay higher for longer.

Stock markets then fell sharply in March when Silicon Valley Bank in the US collapsed. While Silicon Valley Bank was well capitalised, the value of the bonds it held fell in value as interest rates increased. At the same time, many of its depositors, which were concentrated in the technology sector, started to withdraw their money as they became increasingly short on cash as tech funding dwindled. The bank eventually had to start selling assets at a loss, which rattled depositors and triggered a run on the bank. This caused a ripple effect in the banking sector and Switzerland’s Credit Suisse, which needed a capital injection, was quickly acquired by UBS with the backing of the Swiss government to avoid an outright failure.

Bond markets were somewhat volatile over the period as they responded to expectations of rising interest rates in some markets, and then a crisis in the banking sector in March.


The UK economy is on a stronger footing in 2023 than was initially forecasted, although the broad expectation is that there will still be economic weakening. Gross domestic product growth (a key measure of the health of an economy) has been slow for the past six months and ground to a halt in February, and there is an expectation that it will contract slightly throughout the course of the year. Meanwhile, inflation remains high and is expected to remain above the Bank of England’s target of 2% for much of the year. On top of this, even though the Bank of England and other central banks have hit the pause button on further rate hikes for now, interest rates are expected to remain where they are until core inflation begins to fall, which may not be until next year.

Against this backdrop, the outlook for stock markets continues to be uncertain and now is likely not the time to take unnecessary risks. Bear markets are typically volatile in nature with short periods of strong growth followed by sharp drops on bad news, as we saw in March when the banking sector came under pressure. On this basis, we believe investors should take a cautious view for the time being.

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