• People demonstrate in central London against the rising cost of living. EPA
    People demonstrate in central London against the rising cost of living. EPA
  • Former British prime minister Boris Johnson said workers should accept a pay cut to avoid spiralling inflation. AFP
    Former British prime minister Boris Johnson said workers should accept a pay cut to avoid spiralling inflation. AFP
  • Inflation in the UK hit an annual rate of 9.1 per cent in May. EPA
    Inflation in the UK hit an annual rate of 9.1 per cent in May. EPA
  • The British government told workers they cannot expect pay rises to keep up with the increasing cost of living. EPA
    The British government told workers they cannot expect pay rises to keep up with the increasing cost of living. EPA
  • The Bank of England, which says it can do nothing to stop the sharp increase in prices, is raising rates at an unprecedented rate. AFP
    The Bank of England, which says it can do nothing to stop the sharp increase in prices, is raising rates at an unprecedented rate. AFP
  • The UK was also brought to standstill by the biggest rail strike in 30 years this week, with 40,000 RMT union members walking out in a row over a below-inflation pay offer. PA
    The UK was also brought to standstill by the biggest rail strike in 30 years this week, with 40,000 RMT union members walking out in a row over a below-inflation pay offer. PA
  • The RMT picket line outside Bristol Temple Meads station. PA
    The RMT picket line outside Bristol Temple Meads station. PA
  • The cost of petrol continues to rise. AFP
    The cost of petrol continues to rise. AFP
  • A protester demonstrates outside Downing Street. EPA
    A protester demonstrates outside Downing Street. EPA
  • Volunteers in Bradford, northern England, prepare food parcels at the Bradford Central Foodbank. More and more people are visiting the centre. AFP
    Volunteers in Bradford, northern England, prepare food parcels at the Bradford Central Foodbank. More and more people are visiting the centre. AFP

UK braced for downbeat economic figures and further rise to interest rates


Matthew Davies
  • English
  • Arabic

The UK is braced for some dismal economic data this week, as well as a possible rise in interest rates from the Bank of England.

But economists will be looking for the slightest signs that the worse may be over and that there may be some extremely dull light far down the end of a long tunnel.

That tiny glimmer of light is a forecast that inflation might have reached its summit, the Bank of England might be less hawkish on interest rates than they were last month and the recovery of the pound to levels last seen in the summer.

GDP numbers

On Monday, the latest GDP figures are likely to give more evidence to the assertion that Britain is already in recession.

A quarterly forecast from a Reuters poll of economists suggested the UK economy shrank 0.2% last quarter, from July to September, and will do so by 0.4% in this one, meeting the technical definition of recession.

It will then contract 0.4%, 0.4% and 0.2% in the first three quarters of next year, meaning that while the predicted recession will be shallow, it will be far longer than has been historically the case.

Paul Dales at Capital Economics said that “2023 will be a tough year for the economy as the effects of the previous rises in inflation and previous hikes in interest rates are felt”.

“The good news is that we think the recession will end in the second half of 2023 and a gradual fall in inflation will probably allow the Bank of England to inject more vigour into the recovery by cutting interest rates in 2024.” he added.

Alpesh Paleja, lead economist at the Confederation of British Industry said: “While it’s some consolation that the coming recession will be shallow, it’s concerning that longer-term weakness in productivity and business investment appears to be bedding in.

“It does not bode well for living standards and the economy’s capacity to grow over the longer-term.”

Britain's unemployment rate is forecast to rise slightly. PA
Britain's unemployment rate is forecast to rise slightly. PA

Unemployment and recession

Considering the UK economy seems to have started its slide into recession and by some predictions might already be in one, unemployment numbers have remained remarkably subdued.

On Tuesday, the Office for National Statistics will release the latest data on UK's labour market, and while a very modest increase from the three months to September figure of 3.6 per cent for the unemployment rate is expected, a drastic jump is not.

As 40,000 rail workers go out on strike next week, to be joined by nurses and postal workers, the wage growth figures will be closely scrutinised. Regular pay in the three months to September rose by 5.7 per cent.

“That pay growth figure offers some grounds for encouragement for workers, but it still lagged inflation,” said Russ Mould, investment director at AJ Bell.

Inflation has hit British household food and energy budgets. PA
Inflation has hit British household food and energy budgets. PA

Inflation peak?

Economists will be keeping a close eye on the UK's latest inflation numbers due out on Wednesday.

At 11.1 per cent, inflation was running at a 41-year high in October, but many analysts feel that may be its peak. While the rate of inflation is not expected to come down rapidly, the November figure is forecast to be around 10.9 per cent.

The slight drop will come as scant relief to the millions in the UK suffering through freezing temperatures and soaring energy and food prices.

The CBI does expect inflation to drop to anything near the Bank of England's 2 per cent target within the next year. By the end of 2023, the business group is predicting inflation to be at 3.9 per cent.

“This means that the squeeze on households seen this year persists into 2023, leading to a year-long decline in consumer spending,” the CBI said.

The Bank of England could raise interest rates again next week. PA
The Bank of England could raise interest rates again next week. PA

Bank of England decision

Next week is a big week for central banks and the UK is no exception. The US Federal Reserve announces its latest decision on interest rates on Wednesday, with the European Central Bank, the Swiss National Bank and the Bank of England all having their rate announcements on Thursday.

Currently, UK interest rates are at 3 per cent, but it is widely expected that the Bank of England will raise them again by at least 0.5 per cent. In November, the Bank's Monetary Policy Committee raised rates by 0.75 per cent.

Interest rates have risen sharply over the past year. In December 2021, the Bank of England abandoned its ultra-low interest policy and increased rates to 0.25 per cent. On Thursday they could 3.25 per cent higher than that.

All but two in a Reuters poll of 54 economists expect a 0.5 per cent rise in UK interest rates on Thursday.

“Almost a year to the day after the Bank of England began this tightening cycle, it looks set to deliver another Christmas hike,” said Elizabeth Martins at HSBC.

“We think it will be a 50 basis point (0.5 per cent) rise, taking Bank Rate to 3.50 per cent, with risks weighted towards a larger 75 basis point move, rather than a smaller 25 basis point one.” she added.

Nonetheless, with a long and shallow recession predicted ahead, the Bank of England will not want to overdo interest rate rises and risk slowing economic growth further, even given that inflation will remain stubborn high for at least six months.

While the Bank's interest rate rises will take some time to dampen down inflation, they are having a more stabilising effect on the British pound.

The British currency plunged after former prime minister Liz Truss's plans for the UK economy. Even though it had been falling against the US dollar for some time, it plunged in late September to an all-time low against the US currency at $1.0382.

There was talk among currency traders and economists of the pound reaching parity with the dollar.

But by December 5, the pound was back up to $1.2345 against the greenback, its highest level since mid-June.

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Key 2013/14 UAE Motorsport dates

October 4: Round One of Rotax Max Challenge, Al Ain (karting)

October 1: 1 Round One of the inaugural UAE Desert Championship (rally)

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March 21: Round 11 of Rotax Max Challenge, Muscat, Oman (karting)

April 4-10: Abu Dhabi Desert Challenge (Endurance)

Who's who in Yemen conflict

Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government

Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council

Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south

Habrish 'rebels': Tribal-backed forces feuding with STC over control of oil in government territory

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1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption. 

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Tax authorities are increasingly using data already available across multiple filings to identify audit risks. 

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Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

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There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

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Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes. 

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Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion. 

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Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations. 

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity. 

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer

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Squads

India (for first three ODIs) Kohli (capt), Rohit, Rahul, Pandey, Jadhav, Rahane, Dhoni, Pandya, Axar, Kuldeep, Chahal, Bumrah, Bhuvneshwar, Umesh, Shami.

Australia Smith (capt), Warner, Agar, Cartwright, Coulter-Nile, Cummins, Faulkner, Finch, Head, Maxwell, Richardson, Stoinis, Wade, Zampa.

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Emirates (www.emirates.com) flies directly to Hanoi, Vietnam, with fares starting from around Dh2,725 return, while Etihad (www.etihad.com) fares cost about Dh2,213 return with a stop. Chuong is 25 kilometres south of Hanoi.
 

Updated: December 11, 2022, 10:13 AM