Deutsche Bank’s Chief UK Economist Sanjay Raja warns that the UK faces rising recession risks as higher energy prices hit growth. Using Hamilton-based energy shock measures and probability models, he expects United Kingdom (UK) GDP growth to slow to 0.7%, with downside risks increasing. The analysis highlights non-linear effects from Oil and Gas shocks, tighter financial conditions, and policy trade-offs for the Bank of England (BoE).

Energy shock threatens UK growth outlook

"On our current expectations, conditioned on energy curves from 18 March, GDP growth is expected to drop to 0.7% – 0.35pp lower than our pre-conflict forecast."

"To be sure, while we acknowledge serious upside inflation risks to the BoE's outlook, there are also serious downside risks to the BoE's growth outlook."

"On our Hamilton oil shock measure, the relative increase sits closer to 10% (though at the time of publication this has sunk lower) – enough to matter, but perhaps just enough to leave GDP growth in (modest) expansion territory, and not in meaningful risk of recession."

"Our analysis shows the existence of non-linear effects on growth."

"Put simply, the risk of non-linear negative shocks to consumption and GDP are real — underscoring some of the recession risks prevalent in an already softer UK economy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)