KPMG, an international financial services giant, lowered its growth forecast for the UK economy, but believed it would not fall into recession. KPMG believes that war, soaring commodity prices and the Asian epidemic are the main drivers of the sharp slowdown in the UK economy, which may lead to a "mild" recession in 2023.

Inflation and the resulting cost of living crisis are rooted in the development of the international situation, but KPMG said at the mid year economic briefing that the increasing tax burden is also the reason for the downward revision of the forecast.

The international financial services giant said in a briefing, "the cost of living crisis and the rising tax burden have led to a decline in consumer confidence, which is bound to drag down discretionary spending. Without further government support, business investment is expected to be particularly weak next year."

KPMG predicts that the UK's GDP growth rate will fall by more than half this year to 3.2%, and will further slow to 0.7% by 2023.

Yael selfin, chief economist of KPMG in the UK, said: "the worsening of the external environment - leading to the recession of some major UK trading partners - coupled with the sharp decline in UK consumer spending, may lead to a mild recession in the UK economy next year."

In addition, KPMG raised its UK inflation forecast to an average inflation rate of 8.1% in 2022, higher than the 7.9% reported in April. Selfin said: "we expect inflation to normalize from the second quarter of 2023 and return to the Bank of England's target of 2% in the second quarter of 2024."

In terms of Bank of England policy, KPMG belongs to the moderate camp of economists and believes that the Bank of England will not raise interest rates further.

They believe that the Bank of England will only raise interest rates twice in 2022, because the monetary policy committee will have to balance the risk of high inflation affecting salary growth with the risk of economic recession.

Selfin said, "we believe that the doves in the committee are likely to shift the balance to a more gradual interest rate increase than currently reflected in the market, which will further tighten the financial situation, especially against the background that the central bank is expected to shrink its balance sheet."

It can be seen from the above news that KPMG lowered the UK economic growth forecast and believed that the Bank of England would not further raise interest rates, which is bad for sterling. Investors need to be vigilant about this.