Increased risk of recession

The Bank’s aggressive policy tightening will weigh heavily on domestic demand, with consumption growth set to slow sharply while residential investment plunges back to pre-pandemic levels. There is scope for the economy to avoid recession if exports rebound as we expect, but it will be close, with GDP barely growing at all over the first half of 2023. Growth should pick up again in 2024, however, after the sharp fall in inflation that we forecast allows the Bank to loosen policy again.