Page 112 - 86395_CCB - 2024 Annual Report (web)

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Scenario Real Estate Description Asset Finance Description
Base Case In 2025 the economy is expected to grow The Base Scenario sees renewed acceleration
by only 1.2%, this is despite the front‑loading in growth due to stronger government
of government spending announced as consumption and investment. The growth
part of the Budget. There is little chance will be relatively short‑lived as the initial
of significant year‑on‑year growth in the fiscal boost will wear off; cementing the
economy over the forecast horizon with UK’s position of economic performance
inflation remaining above target in 2025 when compared to other advanced
and interest rates ending the year at 4%. economies, as ‘middle‑of‑the‑road’.
A small rise in unemployment across H1 2025 Labour market remains relatively tight
is forecast with payrolled unemployment by past standards; unemployment rate
falling and redundancies edging up. set to remain low over the coming
Higher expectations on interest rates will push quarters before increasing gradually.
up mortgage borrowing costs; limited supply Inflation to rebound modestly and remain
in the market will likely lead to resilient prices. above 2% in the near term as easing
wage growth impacts service inflation.
BoE to continue its gradual easing of rates.
Downside Businesses and households lose confidence The Downside Scenario sees sentiment in
and retrench after a gloomy Budget. Europe turn down sharply amid increasing
Construction activity slips back as concerns around global growth. Geopolitical
firms worry about profitability in tensions rise on fears that the war in Ukraine
a higher rate environment. will spill over into neighbouring states
and tensions between China and the U.S.
Weak global demand causes falls in oil prices.
increase, leading to temporary barriers to
Consumer spending falls as households shipping along the Taiwan Strait. Political risks
reduce discretionary spending even further. in Europe intensify and pressure sovereigns.
In Q1 2025 the economy is heading for The resulting increase in risk aversion results
trouble. Inflation heads well below target and in a selloff in global financial markets that
interest rates start to fall from mid‑2025. sets the scene for a moderate but lengthy
GDP falls around 2.5% peak‑to‑trough. recession. The BoE does not act fast enough
to accommodate the slumping economy.
House prices fall 12.5% from its peak as
higher unemployment creates forced sales.
Severe Downside Global shocks lead to a worsening The Severe Downside Scenario sees the
macroeconomic position. global economy fail to pick up and sentiment
Russia steps up its war with Ukraine as plummets. The risk that the war in Ukraine
US help dries up. Europe diverts more will escalate to the point where NATO
resources to defence which further is forced to enter the conflict becomes
strains their vulnerable economies. acute and heightened geopolitical tensions
between the U.S. and China lead to significant
Higher tariffs lead to inflationary
pressures peaking at 6.8% in Q4 2025. barriers to shipping. This severe increase
in geopolitical risk, along with a complete
Interest rates peak at 6.25% lack of confidence in the economy, leads
Unemployment rises to 8.00% to a sharp selloff in financial markets.
House prices fall 20% reflecting a return
to fundamentals and forced selling.
Upside Higher government investment The Upside Scenario assumes that the Russia‑
creates opportunities in the private Ukraine war ends faster than anticipated.
sector and strengthens recovery. This results in a boost in aggregate demand
There is less friction between the UK and expansion of aggregate supply. On the
and EU as problems are ironed out. demand side, these positive developments
relieve recession concerns, causing an uptick
Inflation remains close to target despite
strong growth leading to interest rates in consumer and business sentiment. The
to be cut to 4.00% by mid‑2025. strong economy consolidates support for
the government, which further supports
Unemployment falls back to 3.8%, effective reforms and investment.
wage growth remains strong and
supportive as the economy moves
onto a higher productivity path.