State of the economy: October 2022

Conclusion

Economic conditions have weakened rapidly since the start of the year with inflation rising to its highest rate since the early 1980s, causing a cost and wellbeing crisis for households and businesses, giving rise to new economic risks and raising the prospect of recession.

The economic risks are already presenting themselves in the data with output growth slowing into the third quarter and consumer and business confidence weakening. Labour market conditions remain tight with low unemployment, however the rise in inflation is resulting in falls in median real incomes, while businesses continue to face rising cost pressures.

The outlook for the economy is particularly complex with the different factors impacting the economy and labour market, and the emerging fiscal and monetary responses to support businesses and households, and enable inflation to fall sustainably back towards its target rate.

The heightened scale of uncertainty and risk in the economy has most recently been reflected in significant market volatility. The full scale of the economic downturn is yet to emerge, however our scenarios work highlights that risks are increasingly weighed towards a more prolonged disruption to output and economic activity.