Goldman further downgrades growth outlook for UK after government tax U-turn

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Analysts at Goldman Sachs Group Inc. have downgraded their growth outlook for the UK, according to a report released Sunday, after Prime Minister Liz Truss removed Kwasi Kwarteng as chancellor and rowed back on canceling 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 states.

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Goldman’s 2023 annual growth projection for the UK has dipped from minus 0.4 percent to minus 1 percent. Now, core inflation is seen at 3.1 percent at the end of 2023, versus 3.3 percent 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 hikes in November and December, from 100bp previously, followed by a 50bp hike in February and two 25bp hikes in March and May.

They have also lowered their expectations of the terminal rate to 4.75 percent, from 5 percent.

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