Economic Outlook January 2022

Bob Bradley – A personal view on the economic outlook written January 2022
As always bear in mind these are personal thoughts from a relatively well informed observer. I do not have a crystal ball and may be entirely wrong. My thoughts are with the sole intention of provoking your own thought process. You are at complete liberty to agree or disagree. It is your thoughts that drive your actions and your actions and judgements that will determine your results.
I am looking forward to a positive period in 2024-2027, as the ‘creative destruction’ of the challenges set out below force greater efficiency and effectiveness in the economy as a whole.

 

I think 2022 is going to be a tricky and stressful year for all of us business leaders with good news, bad news and a lot of change.

 

The most immediate challenge facing everyone at the moment seems to be staffing. Recruitment and retention are tricky and even for those staying put, adapting to new models of working is taking some management. And for now we have the Omicron absences to deal with too.

For most that challenge is now bigger than the supply chain difficulties. These still exist but are abating and I think they will be mostly addressed as market forces increase supply. They are really a lag effect from the sudden rebound H2/2021 from a very low 2020 and H1/2021 where everyone cut back on capacity.
The exception appears to be Energy, where it seems we have a fundamental shift going on. Exacerbated in the UK by our complete closure, for good reasons but perhaps too rapidly, of our coal fired power stations. This means we are now very dependent upon renewables. The problem with wind and solar is that they stop and start and we require expensive, scarce gas to manage through peaks and troughs.  Electricity is difficult to store in volume. Personally I’m hoping tidal (very predictable and pretty constant) will rescue us as an island nation, but that will take many years.
Short term staffing problems due to Brexit and Omicron will also, I believe, largely go away before too long. But medium term staff attitude changes and staff shortages won’t! High demand for labour will create pay pressures and drive automation of all sorts. In services as well as in manufacturing – AI is a form of automation too and is maturing into products very rapidly – just read up on Google Duplex!
Another challenge we are regularly hearing from members is the difficulty of getting business decisions over the line. We hear comments like: “the budget is there, the desire is there but I can’t quite get the decision out of the prospect.” I suspect that is a double whammy consequence of the rapidly changing world. The pace of change means buyers are very busy managing transitions, or maybe simply negotiating the consequences of the latest supply chain or recruitment problem with customers and suppliers. They don’t have time to think and get approval for otherwise valid spend. And that is compounded by them also being nervous about getting their decisions right when things are moving so rapidly.

I think that a less ‘in your face’ but quiet risk in 2022 is strategy. Strategy, being in the right place at the right time, will be more critical than ever as the new normal emerges. The key point being it’s a NEW normal. Some things will not revert to how they were. Whilst some markets will revert, many will not. That means there will be winners and losers. For example, investors in high street retail and office properties may be finding rentals down whilst warehouse space is at a premium. The same applies in many areas. Some businesses and some people will face pain as they experience closures and redundancies, and resources are diverted to new ventures and new jobs.

That pain will be amplified by the financial dynamics of 2022. Financial strength will be even more important in 2022. Inflation is already high relative to the last twenty years and is expected to rise further. I wouldn’t be surprised to see 7-8%. Stop press: CPI announced yesterday at 5.4%, its highest rate for 30 years. And RPI, now regarded as a less useful measure, is at 7.5%.
That will force interest rate rises which will hurt businesses and people with borrowings and take down the ‘zombie businesses’ funded by low interest rates. And in case you hadn’t noticed, this will hit the government borrowing cost too, although the economists have some complex circular arguments about that. Either way, a lot of support from the government has been/will be withdrawn and we already know many taxes are increasing. NI alone is increasing by more than 20% in April.

 

And to finish on a high. The good news is that there is plenty of money around in personal, business and investor accounts. The potential to raise funds and win business is there. The challenge for 2022 in general is going to be getting decisions from busy people, meeting urgent demand despite shortages and coping with change.