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J.P.Morgan warns of more pain for UK, sees GDP decline next year

FILE PHOTO: A woman shops for food items at a market stall in London

(Reuters) - J.P.Morgan said on Tuesday it expects a contraction in the UK's economy next year as it enters a lengthy period of stagnation in the face of soaring gas prices, slowing global growth and tighter economic conditions.

The brokerage sees the UK's gross domestic product falling 0.6% in 2023, compared with a 4.3% rise this year.

Tighter monetary and fiscal policy amid scarring from both the pandemic and Brexit, which are already weighing on the UK's growth, according to J.P.Morgan, will continue to impair supply and demand.

As the UK battles decades-high inflation, the Bank of England (BOE) raised its Bank Rate by 75 basis points earlier this month, with a Reuters poll showing a more modest 50 bps hike at its upcoming meeting in December, taking it to 3.50% by the end of this year.

At the Nov. 3 meeting, BOE Governor Andrew Bailey told investors, who were pricing in a peak around 4.70%, that their rate hike bets looked too big.

J.P.Morgan sees BOE's Bank Rate rising to 4.25% by the first quarter of next year, noting that fiscal policy is set to tighten with a lag, and monetary tightening "will take longer to bite than in the past".

British Prime Minister Rishi Sunak pushed back on Monday against calls from companies to improve trade ties with the European Union and liberalise immigration to help boost growth, saying Brexit had already benefited the country.

Earlier this month, Barclays said it expects developed economies to contract across 2023, with recessions in the UK and the Euro area starting in the third and fourth quarter of 2022, respectively, while Goldman Sachs downgraded Britain's economic outlook and warned of a deeper recession in 2023.

(Reporting by Reshma Rockie George in Bengaluru; Editing by Shounak Dasgupta)