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Activity holding up this year but will weaken in 2023

The latest data show that consumer spending is defying downbeat sentiment and rising interest rates by continuing to strengthen. Indeed, we have been arguing for some time that strong financial buffers would ensure GDP growth remains strong this year despite mounting headwinds. However, we think that the increase in households’ mortgage prepayments since the start of the pandemic will be exhausted by the end of next year. And with dwellings investment faltering before that, GDP growth will slow to a crawl next year.

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