Goldman downgrades UK growth outlook after government tax U-turn

ANALYSTS at Goldman Sachs Group have downgraded their growth outlook for the UK, a report released on Sunday (Oct 16) showed, after Prime Minister Liz Truss removed Kwasi Kwarteng as chancellor and rowed back on cancelling an increase in corporation tax.

“Folding in weaker growth momentum, significantly tighter financial conditions, and the higher corporation tax from next April, we downgrade our UK growth outlook further and now expect a more significant recession,” the report stated.

Goldman’s 2023 annual growth projection for the UK has dipped from minus 0.4 per cent to minus 1 per cent. Now, core inflation is seen at 3.1 per cent at the end of 2023, versus 3.3 per cent previously.

The UK prime minister, reacting to the negative impact the mini-budget had on financial markets, has pulled back on some of her government’s plans, including to abolish the top rate of income tax and halt a planned increase to corporation tax.

Goldman analysts are now expecting the Bank of England to be less likely to tighten monetary policy as aggressively. They are now looking for 75 basis point (bp) hikes in November and December, from 100 bp previously, followed by a 50 bp hike in February and two 25 bp hikes in March and May. They have also lowered their expectations of the terminal rate to 4.75 per cent, from 5 per cent. BLOOMBERG