The UK's recession may be deeper than expected 📉

- Also: High rent prices will likely be bad news for inflation next year. Dive into some of the top GS intelligence. --------------------------------------------------------------- In today's edition: - Can a new prime minister help ease financial volatility in the U.K.? - Two founders on steering their start-ups through macro headwinds - “I don't love the deglobalization word.” (Was this newsletter forwarded to you? [Sign up now.]( --------------------------------------------------------------- The UK is expected to have a ‘significant' recession After weeks of financial turmoil in the U.K., the country is [now expected to slide into a deeper recession]( according to Goldman Sachs Research. - Recent fiscal U-turns on a government mini-budget and the appointment of a new prime minister, Rishi Sunak, have eased market tensions after a period of elevated volatility, but the country still faces (in Rishi Sunak's own words) a “profound economic challenge.” - A four-quarter cumulative decline in GDP of 1.6% is now expected, according to Goldman Sachs Research. Our Chief European Economist Sven Jari Stehn says a “significant” recession is now the likely case for the U.K. - “The combination of rapid and unfunded fiscal expansion made financial markets very nervous. Markets were unsure of how fiscal sustainability would be restored,” Stehn says. “We have now seen a U-turn on many of those government tax cuts, and markets have started to stabilize off the back of that.” - The sharp selloff in gilts that followed the mini-budget had spillover effects for bond yields in other countries, but these effects weren't “systemic,” according to Stehn. [Learn more about the U.K.'s economic outlook in the full interview.]( --------------------------------------------------------------- Rental prices are likely to keep US inflation high next year Higher rents were a big driver in September's higher-than-expected consumer price index reading and could be the source of inflation “stickiness,” [according to Goldman Sachs Research.]( Rent measures from companies like CoreLogic, CoStar, Zillow and Yardi have slowed substantially to an annualized growth rate of 3% in recent months. But those measures include only new leases, while CPI includes both new and continuing leases for existing tenants. Existing tenants tend to see smaller rent hikes than prospective tenants seeking new leases because landlords are reluctant to alienate and lose them. “The difference is especially important at the moment because market rents on new leases grew very quickly over the last two years and opened a substantial gap with rents on continuing leases,” our economists wrote. Rent growth for existing tenants is likely to run hotter as it plays catch up with high (albeit softening) market rates. GS Research estimates that this catch-up effect boosted continuing-lease rent growth to an annualized rate above 8% in recent months, pushing monthly shelter inflation in the September CPI report to the highest on record — even as the alternative rent measures decelerated. Our economists forecast only 3% rent growth on new leases next year, but project that ongoing catch-up of continuing lease rents will cause CPI shelter inflation to rise from 6.8% year-on-year at present to a peak of 7.5% next spring and to remain at a still-high 5.9% year-on-year growth rate by the end of 2023. [Read the full story here.]( --------------------------------------------------------------- Navigating macro headwinds: a conversation with the founders of Brex and Chief In the latest episode of [Exchanges at Goldman Sachs]( two of the entrepreneurs — Brex co-founder and co-CEO Henrique Dubugras and Chief co-founder and CEO Carolyn Childers — from Goldman Sachs' 2022 Builders and Innovators Summit share their founder journeys, as well as the challenges and opportunities they're facing as they build their businesses. Above (L to R): Carolyn Childers of Chief, Kim Posnett of Goldman Sachs and Henrique Dubugras of Brex - A challenging macroeconomic environment can be both a headwind and a tailwind. For Brex, an integrated corporate card and spend management solution, the drop in consumer spending and advertising has been a headwind, but new business is growing exponentially, Dubugras tells Goldman Sachs' Kim Posnett. “Every business is thinking about costs,” he says. - It's important to build a culture of trust. “As you go into some of these harder macroeconomic times – you want to make sure that you have a team that's in that bunker with you that you can really trust to go and spearhead some really big, risky initiatives,” says Childers of Chief, a private women's network whose mission is to drive more women into positions of power. Subscribe wherever you get your podcasts [Spotify]( | [Apple]( | [Google]( | [Stitcher]( --------------------------------------------------------------- “I don't love the deglobalization word,” Scott Kapnick says Above (L to R): Alison Mass of Goldman Sachs and Scott Kapnick of HPS Investment Partners If you're not a fan of the word “deglobalization,” which has been a popular phrase to describe diminishing global integration, Scott Kapnick, the founder & CEO of HPS Investment Partners, agrees. In the latest episode of [Talks at GS]( Kapnick says the term global “realignment” is more appropriate. But he doesn't downplay its impact on global supply chains, growth and the level of uncertainty in the world right now. “The big issue with deglobalization is the focus now on resiliency of supply chain. So, we're a lender. We want to focus on how people are doing that,” Kapnick tells host Alison Mass. [Watch the full interview with Scott Kapnick here.]( --------------------------------------------------------------- #MoreToMe: GS celebrates Disability Awareness Month “My disability doesn't define me. It makes me privileged. I have access to both deaf and hearing worlds." – Alik Zalmover, an analyst at Goldman Sachs. For Disability Awareness Month, we're celebrating the stories of our resilient colleagues and all that they are beyond their disability or caregiver status. the full video, part of our #MoreToMe campaign.]( --------------------------------------------------------------- BRIEFINGS brainteaser: An economic foul ball The success of which of these baseball teams has an unfortunate — and slightly tenuous — association with economic downturns in the U.S.? A) The Philadelphia Phillies B) The Houston Astros C) The New York Yankees D) The Los Angeles Dodgers [Check the answer here.]( --------------------------------------------------------------- ICYMI: In the media [CNBC]( October 25 [Most CEOs are still of the belief the US economy is pretty resilient, says Goldman Sachs president]( [CNN]( October 24 [The risk of an accidental recession is rising, Goldman Sachs says]( [CNBC]( October 24 [China's growth could reaccelerate to more than 4% in 2023]( (02:25) --------------------------------------------------------------- --------------------------------------------------------------- Some of the images used in this newsletter are sourced via Getty Images. The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. 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