UK Economic Overview – November 18
Matt Lyons of Griffin James, takes a look at where the economy is at the moment, and where it might go
Are UK economic conditions improving or getting worse? As ever, the picture still seems patchy. We seem to be getting busier here at Griffin James, but it is yet to be seen whether that increase in volume of instructions is retained, or whether it’s the crest of another ripple, as has been the case in recent months.
So where is the UK economy at the moment? We are still in a period of slow growth, which has persisted for a number of years now. This has had a depressing impact on the growth in living standards, with the popular press reporting last year that families are dealing with the biggest squeeze on their finances since the 1950’s. This is what my dad meant when he said my generation will struggle to achieve the same financial success as his generation. I suspect the South East and London are less affected, benefiting more than the rest of the country from foreign investment, but it’s still a negative picture.
We are ten years on from the last recession now. These things have a ten-year average cycle – so we’re due another one. Any. time. now.
I think the Bank of England agrees too. They’re trying to spot the earliest opportunity to raise interest rates to give them breathing space to reduce them again when the next recession arrives. For all its power, the Bank of England can do very little to stave off an impending recession. It can change interest rates and employ quantitative easing – printing money. There are problems with both these tools. Interest rates are a blunt instrument and quantitative easing, whilst one might think it also to be a blunt instrument, turns out to be a very precise instrument, but only on the bond market. The Bank of England wants to see the impact of it’s printing money on the wider “real” economy – business and the High Street, but it has largely been seen only to impact the upper end of the investment sector. So not particularly successful in making life financially easier for individuals.
There’s been some gloomy economic UK news recently. Christine Lagarde, the head of the International Monetary Fund (IMF), says the global “economic clouds are getting darker by the day”. There has been widespread reporting in the quality and economic press of Italy being in financial difficulties, UK retail growth is at it’s slowest rate for 5 months, the UK High Street and casual dining sector is seeing immense difficulties and consequent business failures for a combination of reasons, house prices are stagnant and there are fewer houses for sale than in the last 10 years as people wait to see what will happen to the economy post Brexit (there – I said it…), there’s Brexit itself causing much delay in investment as widely previously predicted, UK car sales falling and Jaguar Landrover reducing production capacity as a result and China’s debt issue might be coming to a head. Moreover, investment analysts are, as eleven years ago, seeing property investors buying types of property they do not usually invest in (because their usual investment is too expensive) and doing less due diligence before a purchase. Both of these factors are indications that we are coming to the end of the economic cycle – i.e. a recession is coming.
We might also be yet to see the full impact of the failure of Carillion. There was a period of 12 months after Northern Rock failed in 2007 before RBS ran into problems. I’m wondering if the same could happen with the construction sector after Carillion failed, and if we are yet to see the full impact of the Liquidation of that construction giant.
So what does this all mean for the economy? An economic downturn for the UK is on the near horizon. Unfortunately, we have a structurally unbalanced and y the standards of our competitors, a fundamentally weak economy too. It is too focused on the service sector and financial services particularly, and too reliant on domestic consumer spending for growth. Levels of personal debt at near those last seen just before the last recession and we suffer from low productivity. France currently has a productivity level 20% higher than the UK, meaning for every 5 day week, France achieves the same level of UK productivity in 4 days. French workers could have a day off a week, and still be as productive as the average UK worker, and France is one of the most generous western European countries to its workers in terms of holidays and benefits.
There is no real consensus as to the possible severity of the next recession, but there are three main possibilities – a mild dip, an average recession or a severe depression. The impact of a severe depression is unpleasant to imagine – 30% or more unemployment, supermarkets running out of food and petrol pumps running dry for a lack of foreign currency.
How’s the recession planning coming for your business?