Recession and growth

The fast growth in 2021 means the UK economy has recovered back to where it was pre-covid albeit permanently 5% smaller than it would have been if the pandemic hadn’t caused two years of missed growth. Growth is therefore returning to a ‘normal’ level of variation, with growth of less than 0.8% in Q1, slightly faster than the long term GDP growth trend of 2% – 2.5% per annum. And notably this reflected a weaker than expected services growth – which shouldn’t have been too affected by supply chain difficulties. Maybe it’s the staff shortages?

Unfortunately this growth ahead of normal ‘to catch up’ is about to reverse, reflecting the very challenging global situation. The bank is forecasting a small recession in the first three quarters of 2023. I think it will be sooner and deeper than that. The economy actually shrunk 0.1% in March and I suspect we are already in the early stages of a recession. I also think it will get a lot deeper as shortages continue.

The shortages going forward will be of different things. Distribution is coming back and after another hit expected in the Autumn, energy is forecast to be stabilising by this time next year. Sadly though I think we will face further different shortages (such as grain and metals) as the Ukraine effect ripples through. So non-salary costs will continue to rocket and salary costs will also be  ratcheting rapidly. A subject explored more in the employment article.

Employment article

The Bank of England is forecasting only slow growth for the rest of their planning horizon of 2024 to 2025. Instinctively, I think the recession will be deeper than they predict, I also think after we have adjusted we will recover more strongly into 2025. Whilst I think that is the natural trend I also note we will also have a General Election by January 2025, so it is likely that, if they can, the government will be trying to engineer a bounce by mid 2024 at the latest.

I am also optimistic further out. Assuming the Ukraine crisis doesn’t lead to a full blown world war, I am optimistic that things will be in a better place by 2025. I have already suggested that the economic cycle will be turning by then. I also think “Creative destruction” (more on that in the Creative Destruction article, linked below) – will have led to a smarter, more efficient economy. And whatever your preference in 2026, our entrepreneurial world means we will also by then have adjusted somewhat to the post Brexit world and whatever new global trade deals have been agreed should then be kicking in.

Creative destruction article