Possibility of UK Technical Recession; Leading Hedge Funds Achieve Record Profits

Introduction: “Good chances” for the UK to fall into a technical recession

Good morning and welcome to our ongoing coverage of companies, financial markets and the global economy.

EY ITEM Club forecasters believe that the UK may have slipped into recession at the end of last year.

Martin Beck, senior economic adviser at EY ITEM Club, said this morning that it is quite possible that the economy contracted slightly in the last three months of 2023.

This would mean two negative quarters in a row – following the 0.1% decline in GDP in July-September – which would amount to a technical recession.

The EY ITEM Club has lowered its forecast for growth in 2023 from 0.6% to just 0.3%.

Beck said on Radio 4’s Today Programme:

‘We know that GDP – gross domestic product – contracted in the third quarter, and if you look at the high-frequency figures for the fourth quarter, there’s a good chance it contracted slightly again.

The official GDP data for the October-December quarter is due on 15 February.

Headlines that see the UK in recession would not be good news for the government as the Conservatives try to find a difficult path to another election victory.

But, as Beck points out, “it doesn’t make much difference to the public whether the economy shrinks by 0.1% or grows by 0.1%”.

And looking ahead, the EY ITEM Club is more optimistic about the UK’s future prospects, helped by easing inflation and likely interest rate cuts from the Bank of England.

Beck says:

We should end 2024 on a happier note than 2023.

The group now expects the economy to grow by 0.9% in 2024, down from a forecast of 0.7% in October. And growth of 1.8% is expected next year (compared to the 1.7% forecast three months ago).

This is better news for Rishi Sunak and Chancellor Jeremy Hunt, who is working on his next Budget statement, which is likely to include tax cuts,

 

25% more UK companies in critical financial distress

Accountancy firm Begbies Traynor reported a jump in the number of companies in ‘critical’ financial distress in the final quarter of last year.

The latest Red Flag Alert report found that more than 47,000 businesses in the UK were on the verge of collapse at the start of 2024.

This is a 25% increase on the 37,722 businesses recorded at the end of the third quarter of 2023 and the second consecutive quarter in which critical financial distress increased by around a quarter.

Critical financial distress rose sharply last quarter in the construction (+32.6%), healthcare and education (+41.3%), property and real estate services (+24.7%) and support services (+23.6%) sectors.

Begbie’s Traynor adds that the construction and property sectors, which still account for almost 30% of all companies in critical financial distress, raise “serious concerns”.

 

Rising share prices help the largest hedge funds achieve their highest profits ever.

Recession fears did not stop the top hedge funds from making record profits last year.

New data shows that the world’s most successful hedge funds made their highest profits ever last year.

Bold bets on the stock markets paid off as share prices soared at the end of 2023 and markets were buoyed by hopes of interest rate cuts.

The Financial Times reports:

According to a study by LCH Investments, the top 20 hedge fund managers generated $67bn in profits for investors in 2023 – up from the previous record of $65bn in 2021.

This performance cements their dominance over the rest of the industry – the 20 best-performing hedge funds since inception manage 19 per cent of assets but generated around a third of annual profits in dollars last year.

More here.

Billionaire money managers Chris Hohn and Ken Griffin led hedge funds to deliver one of the best years for clients in 2023, points out Bloomberg.

 

Today’s forecasts suggest the UK’s period of economic stagnation is slowly coming to an end, adds Hywel Ball, EY UK Chair.

Ball says:

“Households and businesses still face a challenging outlook in 2024, partly due to the lagged impact of interest rate rises, but slowing inflation and the Bank’s expected rate cuts should help the economy gain momentum as the year progresses.”

Corporate investment, which has been disappointing for some time, should also pick up again in the medium term, adds Ball:

A slight decline is forecast for 2024, but this should be followed by a revival in investment spending in subsequent years. Falling inflation and declining market interest rates, combined with the potential for additional tax cuts in the Chancellor’s Spring Budget, suggest that the UK is at a turning point in 2024 and will enter a more positive growth phase.

 

Introduction: “Good chances” for the UK to fall into a technical recession

Good morning and welcome to our ongoing coverage of companies, financial markets and the global economy.

EY ITEM Club forecasters believe that the UK may have slipped into recession at the end of last year.

Martin Beck, senior economic adviser at EY ITEM Club, said this morning that it is quite possible that the economy contracted slightly in the last three months of 2023.

That would mean two negative quarters in a row – following the 0.1% fall in GDP in July-September – which would be a technical recession.

The EY ITEM Club has lowered its forecast for growth in 2023 from 0.6 % to just 0.3 %.

 

Beck said on Radio 4’s Today Programme:

‘We know that GDP – gross domestic product – contracted in the third quarter, and if you look at the high-frequency figures for the fourth quarter, there’s a good chance that it contracted slightly again.”

The official GDP data for the October-December quarter is due on 15 February.

Headlines that see the UK in recession would not be good news for the government as the Conservatives try to find a difficult path to another election victory.

But, as Beck points out, “it doesn’t make much difference to the public whether the economy shrinks by 0.1% or grows by 0.1%”.

And looking ahead, the EY ITEM Club is more optimistic about the UK’s future prospects, helped by easing inflation and likely interest rate cuts from the Bank of England.

Beck says:

We should end 2024 on a happier note than 2023.

The group now expects the economy to grow by 0.9% in 2024, down from a forecast of 0.7% in October. And growth of 1.8% is expected next year (compared to the 1.7% forecast three months ago).

This is better news for Rishi Sunak and Chancellor Jeremy Hunt, who is working on his next Budget statement, which is likely to include tax cuts.

 

Read more: 

Market Predictions Point to UK Interest Rate Cuts in 2024 Amid Recession Concerns

 

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