Monthly economic brief: June 2023

Economic outlook

Output data continues to underpin a resilient economic outlook, however inflation has been stickier than expected and may require increased monetary tightening.

• At a global level, some economic headwinds continue to ease with notable improvements in global supply chains and falls in global commodity price inflation. However, core inflationary pressures and tighter monetary policy continue to temper growth prospects.
• In June, the OECD forecast global growth to weaken from 3.3% in 2022 to 2.7% in 2023 (the lowest annual rate since the global financial crisis except during the pandemic in 2020) and remain subdued at 2.9% in 2024. OECD inflation is forecast to fall from 9.4% to 6.6% in 2023 and 4.3% in 2024, reflecting lower energy prices in the short terms and a subsequent easing of wider persistent core inflationary pressures.^[25]
• At a UK level, growth forecasts for the year ahead have been revised up from forecasts made in the second half of 2022, however the growth outlook remains subdued and fragile amid higher interest rates. In May, the Bank of England forecast UK GDP to grow 0.25% in 2023, rising to 0.75% in 2024 while inflation is forecast to fall to 5.1% by the end of the year. ^[26]
• More broadly, the average of new independent forecasts published by HMT in June indicates UK GDP growth will be 0.3% in 2023, which is the highest average forecast since August 2022, while inflation is forecast to fall to 4.7% by the end of the year. This is higher than the average inflation forecast in recent months and likely reflects the persistence in elevated food price inflation and the recent rise in core inflationary pressures. ^[27]

• At a Scotland level, latest forecasts in May from the Scottish Fiscal Commission forecast output to grow 0.2% in 2023 (revised up from -1.2% in December), before growing 0.9% in 2024 and 1.3% in 2025. ^[28]
• Overall, economic activity strengthened at the start of 2023 having remained broadly flat over the second half of 2022, resulting in the outlook for 2023 being revised up from previous estimates.
• Most recent data indicates that growth slightly slowed in April, which is consistent with growth forecasts for the year. Inflation is forecast to fall sharply this year, however latest data indicates that this may be more slowly than recently forecast due to the persistence of core inflationary pressures. This has raised expectations of further increases in interest rates which emphasises the uncertainty and fragility facing the outlook for growth.