UK economic update: John Ashcroft forecasts challenges for Q4 and early 2023

Is the UK tumbling towards a recession or are we already in one? How can businesses prepare themselves with so much economic turbulence on the horizon?

On Thursday, 24th November, Protiviti hosted a quarterly economic update with economist Dr John Ashcroft (The Saturday Economist) as part of their Tackling Tomorrow Today series.

Since we first chatted with John in March, the consumer price index has risen almost 10%. Although the OECD said the UK economy would grow by 4.4% in 2022, they now predict it'll contract by 0.4% next year. Currently, only Russia's contraction (almost 6%) is worse than the UK's.

UK Economic Update with John Ashcroft

early and we'll be speaking with you soon hello everyone once again thank you and welcome to opportunity quarterly economic update uh thank you very much for dialing in so promptly uh we will be starting in around four or five minutes time so still time to get yourself a cup of coffee or tea and we'll be kicking off very soon hello everyone on thank you all very much for joining so promptly and Welcome to our fertility quarterly economic update with John Ashcroft uh we'll be starting around two or three minutes time um so still time to grab yourself a cup of tea or coffee and uh we will be kicking off very very soon thank you hello everyone once again thank you for joining we'll be kicking off in about one minute um and Welcome to our productivity core clear economic update with John Ashcroft if you're quick you still got time to grab yourself a cup of coffee and we will be kicking off very very soon thank you so good morning everyone welcome to this prativity and Robert Half quarterly economic update part of our tackling tomorrow today's series of 2022 my name is Paul Middleton and I'm joined here today by my colleagues from prativity and our sister company Robert Half it's great to see you all here and especially to see some familiar names and faces coming up on the screen um today we're talking about the future of our UK economy and our global economy um and I'm sure we won't be struggling for things to talk about in that sense um the first time we spoke with John this year it was back in March when UK inflation was forecasted to be just over seven percent and UK growth is estimated to be just under the four percent that seems like a world ago um and I think in four chancellors ago as well the Consumer Price Index has now risen by almost 10 in the last 12 months and although the oecd recently said the UK economy would grow by 4.4 this year they predict we will contract by 0.4 next year with only Russia's contraction of almost six percent being worse in the UK so what does this hold for us when can we expect some better news what's going to happen to inflation oil prices fuel prices gas prices grain interest rates wages and what effect will the war in the Ukraine continue to have power more Rises by the FED affect us and the global economy and are we already tumbling into recession or are we already there so the session today is about what that means for all of us day to day and the businesses we all work in um as well as looking at things like the markets and probably linked very closely to all our pension pots so to answer all these questions but more importantly all your questions I'm delighted to welcome back Dr John Ashcroft as some of you may remember from his appearances on our collaboration forum and previous versions of this economic Forum John specializes in economics strategy and financial markets working with professional firms large corporates and small medium Enterprises he's the author of the Saturday Economist his weekly blog published on a website of the same name the some of you may subscribe to discussing the UK and the world economy and my my team will post a link to that in the chat if you wish to go and have a look John specializes in viral modeling and it's this combination of modeling and statistical fueled economics that has resonated with so many of you before so we thought given everything that's going on it's quite timely to bring you an update on John's insights perspectives challenges and normally his dose of optimism that goes with that John will be presenting his thoughts using some slides so if you have questions or comments while he's speaking please just post them in the chat and the teams in the in the uh in the teams bar as we go when he's finished I'll be delighted for you to come off mute ask John all those difficult questions and please do that just by putting your hand up using the icon or physically um put your camera on and show me that you want to ask a question and I'll come to you John will speak for about 40 minutes so with plenty of time to ask questions after that and I'd really urge you to get involved please please ask questions be bold let us know your thoughts as it's infectious and ultimately this is your Forum so please guide it wherever you'd like it to go so with that all done John it's great to see you thank you for joining us and over to you well thanks Paul and Molly everybody it's certainly a fascinating time and there's much talk of recession the bank of England talking about are being already in recession the obr suggesting we're already in recession but actually there isn't much evidence yet that we're in recession a lot of evidence that we could be heading that way and badly but we will look at some of the issues affecting the UK economy and we'll also be looking at the world economy equip whiz around the world before we focus in some detail on the UK a lot of information this morning and a lot of um heavy data but if you bear with me they were hoping to deal with so many critical issues so thanks for joining me I'm now going to pull up my slide Deck with a bit of look with a few issues yesterday but um I'll then run through this slide deck and pick you can pick up on the points you want to do as we go through okay so hopefully that's my slide deck in play no it's not yet John um there we go it's buffering now uh yeah like coconut milk what okay not yet John hey let's try that again you can see your desktop John you see my desktop you'll see your desk you might be sharing the wrong screen yeah maybe I'll get back to where I was maybe try another screen for you let me give it one more go and if not um Becky I think if if you're able to maybe share from outside if that doesn't work just look yeah there we go that looks more promising if you get rid of the team slide there we go there's that perfect you're you're up and running yeah sorry about that a few Tech issues so as I say we were looking at the world Outlook and the UK Outlook and the quick Market summary uh to close so what we're looking at as we said in early part of the year is lower growth with higher inflation higher interest rates higher taxes and higher borrowing not a great Outlook another great recipe for growth the global recession well not yet but we're bursting for high prices lower growth and higher rates we've had a series of issues to contend with that pandemic shock the economic shock thereafter the seismic shock of disruption to supply as the economy is recovered and also the threat of war with the invasion of Ukraine now in full play we've talked in the past about the burhook hunting's move on Ukraine meant they came up against the NATO forces Russia's budget of 50 billion dollars up against a trillion dollars from NATO and the services there and that's why there's so much talk now about the Russians actually running out of Munitions the begging product from North Korea and around the world trying to meet this Demand on the rapidly depleting resources so we added global conflict and Global tensions to the issue but when we look at the latest IMF World growth forecasts we've seen through the year they've been reducing the prospects for growth they talked about growth at the start of the year of 4.4 percent for the UK economy that slipped to 3.6 in April it slowed again to three percent in July and the latest October forecast is slightly better at 3.2 percent and we're seeing how that impacts on the different crunches around the world some good news on the inflation front we're seeing an easing of oil prices with oil trading at 85 or 86 dollars today but this is w2i West Texas International the price is coming off the top equally with gas prices the gas problem putting the squeeze on Germany and Europe but they've come off the real highs that we saw earlier in the year but still historically High compared to a year or so ago gray and equally the pressure's on grain prices has eased given the passage of product Out of the Black Sea the rest of the world copper and some easy good prices there and we've also seen this rapid decline in shipping costs the crisis of shipping costs from China to North America has now eased significantly and there's further good news because new content area capacity more container capacity is said to come on stream next year and there's even been some evening of the chip crisis that Nintendo has been fighting the chip crisis as more capacity has came on stream through the year and more is Promised for next year so what a world trade we know that in 2021 World Trade bounced back with 10 growth that is in 2022 to around 4.5 percent and is set to ease even further next year to about 2.5 so this pattern of uh slowing world trade and easing of prices to a certain extent is going to ease the inflation though look for the world and even for the UK economy into next year foreign forecasts have been falling we know that it was around uh 21 2021 it grew about 8.1 and now is expected growth of about 3.2 percent which is down from estimates of nearly 5 growth early in the year China at the moment grappling with the Kobe crisis was this brutal shocking tactics to try and contain the problems of neurobriggs and the IMF are warning that China's got to recalibrate this Kobe strategy if they're going to see growth it even the levels the the reduced estimates at the present time do you still think China will overtake the us as the largest economy in the world by 2030 well maybe we're not so sure now but nevertheless it's still said to double in size by 2035 and Beyond and we must not forget as we grapple with the challenges of Great Britain in the world the Asia Pacific Zone accounts for 35 growth and here's the chart here's a graph of you anybody like geeky stuff like this this is the uh the US and China Nook and for half of the Worlds how to sell wealth so forget what's happening in the UK or what's happening in Europe China and the us know again for half of the world's wealth and that's why we think that the the new Reserve currency will be uh the uh the U.N the ren NIMBY as it comes to play to challenge the hegemony of the dollar so what did the USA well here again we're seeing growth forecasts lowered for this year and into next year but not into a recessionary environment and we've seen the unemployment rate quite low at 3.7 as it is in the UK and modest uh expansion of unemployment is expected over the next couple of years an inflation rate has hit eight percent through this year we'll look at the monthly charts in just a moment and it's expected to slow to about five and a half percent next year when we look at the monthly pattern you'll see why there's so much optimism in the US that the Peaks may know have been hit first of all in consumer prices which peaked at nine percent in May slowing to just under eight percent in October and that pattern is repeated in producer prices which peaked at just under 12 in March now slowing to eight percent in October so no wonder that uh markets are optimistic about the direction of travel and so much speculation about how aggressive will have to be in the year ahead especially into next year let's not forget given the strength of the dollar this year that the fundamental problems remain a big internal deficit and also a big trade deficit no matter what happened to the sanctions with China so these twin deficit dilemma internal deficit external deficit leads to this phenomenal 31.3 trillion dollar debt and Rising so what are the EU well again similar pattern in The UU with growth forecast lowered and it looks as if the ECB is slightly behind the curve when it comes to inflation with the indications being that inflation is still centralized given the problems with gas specifically and gas prompting The Squeeze on Germany and on the European states that basically growth May forecast May well be lowered and the FED will be expect and the ECB will it be expected to act to raise rates even higher each week now we do our Friday forward guidance we do a Monday morning market review and a Friday for a guidance so we think that this is the pattern of the outlook for U.S base rates over the next year peaking about 4.75 into next year and in the UK we expect base rates to Peak at about 4.5 percent in the middle of uh 2023 and similarly in Europe where they're really behind the curve and this estimated 3.5 May well be too low we know we've seen uh Market expectations of bank rate shut up when quasi-quartering was hijacked by the markets and possibly the bank and possibly the treasury uh when he did his lavish budget but no uh Esters have come down to around between four and five percent and this is our summary of um forecast at the moment which is up online on the website and we update that every week not changing much at the moment so the big dilemma in the US is the markets that play in the FED how aggressive will the FED be how have we seen the worst of it well maybe we'll talk about that in a moment so I'm not going to focus on the UK and bear with me because I've been I've been trying to Grapple with everything that's happened as Paul said we've had four chances in the last four or five months and we've had a couple of budget cracks at that so we're trying to digest what happened with um with the obr forecast specifically bear in mind if you're a new Chancellor like quasi-quartering and you're coming to office saying you know you didn't break the treasury you don't rate the obr you don't rate the markets you don't rate the bank then everybody's going to stand back and say well have a go Palance here you get on so we are expecting and to some extent if I'm my positive outlook uh to play we expect growth of 4.4 this year not so dramatic really up in the top right we saw growth of almost 11 in q1 and four percent in Q2 and 2.4 growth year on year in Q3 forget all those estimates of well don't forget but put into perspective the estimates that growth was slowing into the third quarter yes it was slowing but the year-on-year comparison was still positive and also also bearing in mind at the moment because there's been so much drama in the data over the last couple of years the poor guys who have to do the seasonal adjustments are really struggling because the disparities are so enormous with the pandemic shock and so on so our benign forecast will be with the growth of 4.4 this year which is almost uncontestable now given the data we've already got and we think there could be an outcome about 0.5 growth next year the obr are much more Negative they see 4.2 this year and uh shock to open to 1.4 next year the bank read more pessimistic they see almost 2 1.9 percent shop next year when we look at the forecast for the UK economy at this stage here we're just including the forecast for November from about 15 major forecasters they see growth well into negative territory with estimates of inflation next year anything from two percent to eight percent so there's a lot of confusion about it and when we look at the latest you hear a lot about the global PMI s p Global PMI data set uh they're really a negative poetry at the moment I'm not so keen on that it's more like a mood swing index rather than a clear barometer of the direction of travel why is everybody so gloomy well it's this incredible squeeze the obr are talking about to household disposable income given the squeeze on real wages uh as inflation is above the level of Fairway settlements and also the shock of energy prices plus some tax Rises to feed into the equation so the obr is saying that the shock to disposed Lincoln could be uh seven percent over the next couple of years anyway makes you wonder why we pay so much attention to the overall forecast really they don't have a great reputation but when you see the trend growth this is what the obr the yellow line where the obr were projecting in March and this is where they are in November with this shock to output and then a steady recovery compared to a trend rate of 2.1 percent prior to covid it means the output Gap where we would have been had the world gone to swimming in according to plan we've lost about 10 of output which is worth about 200 billion dollar pounds plus and that means that's a tax take of almost 100 billion which is now feeding into pressure on government borrowing so let's see if the ABR forecasts are as pessimistic as the outturns emerge maybe not uh this could look too dramatic but it certainly makes an incredible picture of the shop to output and when we look at things like manufacturing this is the long run Trend since 1948 so there's a bit of a setback in manufacturing at the moment but as you see according to Trend a big setback in the in in the um private crisis then a big recovery which overshot the trend and that's just the moment and that's feeding into some of the negativity about growth at the moment which would argue that maybe it won't be quite as bad uh next year inflation the annual average forecasts about nine percent for this year and 8.2 percent uh next year so still a big inflation new burden and when we see it month by month these are the forecasts from the bank of England in May which thought it was going to Peak at 10 and then rapidly drop this is their estimate in November peaking at 11 and then dropping quite radically next year if you look at the obr figures they're even more pessimists to go optimistic they say there's going to be uh negative deflation in fact but into 2024 the end of 2024 and if you believe that then you believe anything uh certainly we you know the level of confidence we attach to OBO forecast diminishes by every 12 months added to the plan oil prices we've seen oil prices come off the top the trading rate 85 86 at the moment and we expect them to average 95 through to the end of the year but here's a chart for gigs but that means the inflationary pressure from oil the red child at the bottom diminishes by uh the end of this year and into the first quarter next year so it's still a big problems from gas prices but oil prices means that the the deflationary impact will start to feed through into q1 and Q2 next year which is good news for inflation when we look at the bank base rate forecast this is our estimate of where we see uh base rates going um and the obr is slightly more pessimistic depending which way you look look at it they see rates speaking of about four point just under five percent in the third quarter of next year and that looks to be highly demanding at the moment because the FED are already signaling they're going to move by it's still going to move higher but not in jumps of 75 basis points there which is what we envisioned in the plan and the bank of England already getting a bit nervous uh with even now they haven't got a consensus vote a full vote for um for the rate raises that are being put into place so again the obr looks a bit too um negative if you like in terms of the monetary outlook for base rates I'm going to look at the labor market charts at the moment and I've tried to put in some interesting charts on this thing because it's it's such a fascinating issue where we have 1.2 million unemployed incredibly low and 1.2 million fragrances in the economy an astonishing phenomena which will look at some of the data for that so we see um at the moment uh inflation of unemployment averaging about 3.8 this year Rising under one scenario to 4.2 and 4.4 in numerical terms that means it's going to rise from about 1.3 million to 1.5 million by 2024. that could well turn out to be a slightly more pessimistic scenario given the fact that we still have this incredibly High number of vacancies and when we look at the ratio of the UV ratio as we call it from unemployment to vacancies you'll see it's hit this incredible low figure which is starting to pick up but we still look at the disparity in the numbers here's a chart for geeks again this is amended beverage curve forgive me at the moment the big data set in the middle is actually the trend and what we've seen is significant outliers generated by covid were vacancies were too low in the period of May 2020 to December 2020 and now they're just too high compared to the reality of the market is between June 2021 and into September the latest data at the moment what we should see is for a given level of unemployment of 1.3 million the level of vacancies should be more like 800 000 according to the base data and this suggests that a there are too many vacancies in the economy given the level of output but B also that this may well be a buffer which absorbs some of the unemployment shock as the economy slows down which sectors are most affected well it's Health and Social accommodation of food retail but also in Professional Services manufacturing and significantly still demands and construction so what we see in terms of earnings at the moment is the red line is the trend rate of growth about 3.5 percent I was 18 earnings pop up to a six percent or six and a half percent but we still expect that's average but six percent into uh 2023 uh and possibly slowing in 2024. the average journey is by quarter gives them that data that we're speaking around uh some point three percent in the second quarter mainly for statistical Reasons I'm not going to look at a series of charts because a lot of talk about were the jobs or what's happened to unemployment and what we're seeing is the employment dropped in 2020 given covid but then it picked up significantly to around 32.7 million uh according to the latest data we have which is the Q3 uh 2022. what we have seen is the incredible drop in self-employment which was about 5 million prior to covid and it's dropped to about four and a half or 4.3 million uh in the latest data so a lot of people a lot of jobs left in the market were people who are self-employed who presumably just gave up the growth but gave up the ghost in terms of working for themselves uh but also there's been a rise in economically inactive people those who've just decided that they're gonna give it a call that a day and pack it in a lot of speculation about immigration you know yeah what we see is this is the employment pattern for UK citizens uh bearing in mind 20 of the workforce is the non-uk citizens this is what happened to EU citizenship in terms of employment in the UK of EU citizens it peaked uh in 2020 prior to kobit but the trend rate of growth had that continued did not come back after covid had the trend rate of growth continued it would have been 2.7 million compared to 12 years about 2.2 or even 2.3 at the moment so almost half a million people left the UK let's go back to Europe and have not come back and this has compounded the challenges for recruitment in health and Retail in all sorts of sectors that's why the CBI are arguing for a relaxation of immigration controls that's why wolves and next it was a great uh passionate advocate of brexit is calling for a relaxation of immigration controls and what we get is uh Kent from the government talking about the priority is illegal immigration yes it is a pro it is an issue to be dealt with but the priority is trying to get these workers back into the jobs that we need in the UK and what's happened is the non-eu uh participation rate has just continued on Trump so big challenges there for government the Dogma is divisive because it's preventing this relaxation of rules and of course we've got uh the labor party and staff are arguing that he just wants to see higher wages for the uh for the for the workforce okay but that half million bridge will not be met anytime soon a look at the Autumn statement um yes a lot of credit went to Jeremy Hunt for what he was doing but so much of it was back-end loaded you know the pain was pushed back into um 24-25 and actually Beyond into the next Parliament which a lot of people talked about and when we look at the personal tax tissue situation specifically we can see that that is yeah I'm sorry yeah obviously the personal tax burden it makes you wonder why they place so much pressure on personal taxation increases at this time creating so many bad points for the tourism boosting the labor party polls because the reality is it only really comes into yield in two or three years time presumably after the election of course you got credited from the markets because of that and equally in terms of the public spending we're seeing giveaways to the NHS and to education but the real burden of the increases comes in 25 26 onward this asterisk is what we call Cuts has yet to be identified it was a tactic that David Stockman the budget director of Ronald Reagan used during his budget calculations they couldn't balance the figures so they just put in an asterisk and said well you know these Curts will identify a bit later down the line so it's going to be left to possibly the labor party to sort out how those deficits or Cuts in in government spending are made and when we see the forecast in business taxes and then they start to bite slightly into next year but bytes into 24 25 this is for the windfall tax the energy profits level and the business tax and what we've seen is this mythology of Britain becoming the Singapore of Europe is just the we've seen this slide before from me it's just that Fantasy Island or the treasury policy officer opposite we have a plan yeah I'm not sure he has a plan at the moment which we'll talk about later but when we look at borrowing we all it was estimated to be borrowing of 99 but it's on Trend until the after the September figures uh but this has been blown away by interest payments that have been coming to play and we've seen the estimates for borrowing drop from 99 billion was expected this year to a phenomenal 177 billion and 140 billion then 84 then 77 and 80. a phenomenal increase in government borrowing and the demands on the guild Market why has that happened it's happened because of the differences in the debt interest spending but also the energy and cost of living support which was 58 billion this year and 25 billion next year so a big surge in borrowing primarily because of the Dead interest spending uh where's that come from and also the energy and cost of living support and when we look at the forecast for borrowing as I say it goes to quite a phenomenal rise for uh this year and into next and when we look at public sector debt that rises to about 2.8 trillion say quickly by 24.25 which I've not seen the figures talked about but it counts to something like 107 to 106 in those couple of years as a percentage of GDP why did quasi quota and get into trouble well as I say he came in challenging treasury thinking came and challenged the bank of England's mandate and disregard to the market ignored the obr a scout regard to the guild market and he was punished because the bank now owns a third of the guilts they stood back and let it happen a little bit overseas Holdings they that's now just under 30 percent of the good Market they didn't like the trend of where it was all going so when we look at the summary from the ifs they say it's the worst Public Finance Outlook yes we agree with that tax is a share of national income is forecast to increase above 37 as a result of the latest uh treasury plan debt interest is known as high share of GDP in over 70 years and debt is barely falling or building on the falling path at all and although we're squeezing you know uh I haven't got the credit for squeezing the the figures actually as the ifs says it's Lord Make Me squeeze Public Service budgets but not just yet it's pushed into the labor party's lap probably the conservative party lap possibly after the next election so now we look at what of trade this is the chart of where we think the deficit will be this year Surplus and services maintained top right corner but the deficit trading Goods goes from 150 billion this year to over 230 to 30 230 billion in 2022 and that means the net trade deficit is about 80 billion this year and when we look at the what's happening in trade well the deficit trading Goods is increasing with the but in terms of the EU and with the non-eu and the deficits overall uh means that you know the trade balance looks bad as Imports surging and uh the the UK exports are still lagging in terms of the word ready to go so a lot of growing we covered I'm sure you've all got a lot of questions I had a lot of questions to try and grapple with it so it took me quite some time to try to understand what was being set and what was actually happening and also what was being interpreted by the markets so I'm just going to wrap up now with a look at the market updates a lot of questions about what's been happening to the UK markets well we do our Monday Morning Market evaluation and this is like a trend momentum analysis that we do we reckon that the US market specifically we're nearly 30 overvalued at the start of the year in January so it is expected that the and the European markets not so much maybe you know footsie at five and the Dax at nine in terms of over valuation but nikai and the Asian markets were around Shanghai around 10 but this setback to the US markets was going to happen and what we've seen is they've come off by you know take the NASDAQ by 34 uh Europe uh especially uh France and Germany don't buy almost 20 and the Asian market is down about 10 on average so they were overvalued there was going to be a correction there was a correction it was a big correction and where do we see it now well bear in mind you know we see that uh the Dow is overvalued maybe a little bit but great value apparently I am not licensed with giving a financial advice and uh this data is available on the website but the NASDAQ is then is an undervalued at the moment we reckon and hangs things specifically and Shanghai equally those are the opportunities markets if you got the courage to beg against kobit and the changing policy of the Chinese government that's the summary chart we have on the website we look at the markets every week the parent training at 119 when we did this section training at 120 pushing 121 this morning against the Euro he's pushing 116 this morning and and the eurius dollar bill by 104 so we reckon that we've seen the trough in Sterling and we've probably seen the peak in the in the dollar and when we look at gills well the guild Market was trading even lower 10 year guilds down about three percent in the UK so a big collapse big adjustment to the UK guilt Market from the days of quasiquating and that shock to Pension funds we all discover new technology I'm not sure we knew what ldi's were a couple of months ago but the shop to Pension funds from ldi's has evaporated as guilt yields have reduced and when we're going to sunax dilemma you've got to say there's no tax strategy at the moment an underlying tax strategy as to what's going on there's no industrial strategy which is CBI complaining about there's certainly no growth strategy which is also what they've been talking about there's no trade strategy there's no immigration strategy and there's no Northern Ireland strategy and given the prospect of uh the Scottish separation then the problems could even get worse so that's my summary so in summaries they say UK recession well not yet but we are breaks for higher prices lower growth higher rates and maybe we will be slipping but it could be relatively modest setback for next year so that's it I know and stop presenting and say and come back to the reality hope you're still with me hope you're still with me absolutely John we all are we all are now look thank you ever so much for that you you covered a an awful lot of ground there John I'll let you take a breath um a lot of graphs and stats and insights as ever but I think probably more than more than normal um quite a few questions oh sorry quite a few comments in the chat about kind of loving your visuals and things like that and um and so you know we have posted again that's the link to um John's website in the chat where you can see more of those um I think one of these days John we should do a test at the end of this presentation to see if people have actually been listening or not but uh before you all dial off I won't do that today um all right so we'll we'll take it easy um what I would all ask you to do please and and I can see that they're coming through please do put your um please do put your thoughts and comments in the chat and we've got a few there already um I'll kick us off with a question John and then I'll I'll come some of the ones we've had John John you've got a wide range of people from different Industries different sectors different businesses different levels on this call if you were sat in front of a CEO of a UK PLC this afternoon with such a wide range of variables you're talking about they're asking you what their Outlet looks like and what they should be most worried about from a UK perspective what top three things would you point them towards uh yeah well that's that's a good question I think it's difficult to to even pick out three because the major challenges at the moment have still got to be coping with the supply shock and coping with the challenges of rising prices the extent of product elasticity and the extent to which those can be passed on is obviously critical so from a supply and pricing point of view that is one issue a lot of challenges about Recruitment and Retention understanding the motivation of the workforce especially the younger Workforce so understanding what should be there in terms of you know you can't adopt the musk model maybe everybody should model of how of just firing everybody and asking them to come into the office and explain what they're doing that doesn't really work actually works in the US not going to work in Twitter and it wouldn't work in the UK but you know supply side issues pricing issues uh staffing issues the challenge of recruitment we would always go what we call condition red at this time which would be you know you put a hold on recruitment put a hold on replacement you put a hose on capital expenditure we went through a phase where we stopped any maintenance including painting and decorating the offices so it's all about taking caution because it's understanding where interest rate levels are going to go and everybody should be modeling the impact of 4.5 percent interest rates base rates with premiums on top of that in terms of of what it will happen so you know we talked about we used to talk a lot about planet zurp when it comes to interest rate policy what we've seen is return to what we would call normality with guilt yields should be about 44.5 and base rate should be about four to four and a half percent uh whether they'll get there and whether they'll stay there is one thing but that should be modeled into every business at the moment okay thank you John um I mean just just a link to that you you highlighted that the UK has lost 10 of outputs on that kind of straight line trajectory moodies have downgraded us um a lot of people here might feel that the UK has feared so much worse than other countries why is that and how does the UK maintain its place on the world stage gosh well I'm afraid you have to return to the dreaded issue of brexit uh when we talked about brexit we talked about four main areas of concern one was political one was social one was economic and one was business and in terms of economic business we said well put those two inside because there is no evidence whatsoever to justify a brexit move with a separation from Europe that would be damaging to the economy and it would be damaging to business when it came to social the issue was immigration the population had been hyped up about immigration and there we've seen the problems now that are facing the economy with a severe 1.2 million vacancies half million people who should be here from the EU or not so the argument that immigration the social argument the completely fallacious as it was presented at that time and then you can find the residual argument the argument was who governs Britain is it Anonymous bureaucrats in Brussels or Posh speaking Cockney rhyming slang for people in the UK that who governs Britain that's a great question so brexit I'm afraid in terms of economics in terms of political in terms of social in terms of business that's caused incredible damage which should be so difficult to unwind and when you see the strength of the Chinese and the US economy when you see that 35 significance of the Asian Gap when you see the opportunities presented by uh staying within Europe when you see the problems created by moving out of Europe with a Japanese car manufacturers the Eevee plants uh going to to Europe then you'll see that's creating fundamental problems for the economy and we've seen such a significant shock to Output so I'm afraid it's going to be a long grind given the stance we have at the moment so no March of the makers if the government do develop an industrial strategy as Jeremy Hunt was promising that will actually be the ninth industrial strategy platform in 12 years and it shows the lack of see-through thinking uh in government of the president so yeah sorry to do the brexit stuff but you can't get away from it no no that's all good look thank you for the questions coming through all I'll um I'll start rattling through them but please also feel free to put your hand up if you want to ask a question of John directly um John just just link to what you were saying there about the the role of the government just a question from Chris around that to what extent can the government the Central Bank influence the macro economy here such as reducing unemployment inflation promoting economic growth um to what extent is it in our hands well the rule of the central bank is quite clear the Mandate is to an inflation Target to about two percent and that's got to be the overriding objective and that's going to be a good objective so the bank must do what it must do to ensure that Target is met and the evidence that they've been significantly lacking behind the curve and getting interest rates moving okay it's easy to say when you're not on the uh on the committee but that's the bank's remit that's what they should do and get on with it in terms of government well you know there's so much that has to be done but it's when you get policy ruled by you've got to kick out the Dogma and if this if the CBI are calling for lacks immigration then okay let's relax immigration rules and get more workers into the UK if the government as part of the Dogma is saying we must abolish red tape from Europe and businesses saying look it's not regulation it's standardization of the products and the product standards we don't want to see this Burning of uh European rules well you've got to kick out the dogma and be pragmatic and it gets talking with business and get understanding what is really required in terms of a platform for strategy and you know there's so much so many problems there created with with Healthcare and in education and in social welfare that uh there's got to get back to the basics it's not difficult but the dogma's got to go and the right-wing dogma's got to go and that's going to be a fundamental you've got to be pragmatic and talk to business and construct the path for growth there's no strategy for growth at the moment so I love this next question from Kelvin um John your your prime minister for the and Chancellor for the day what an honor and maybe just today um you can maybe last seven weeks or whatever but what what do you plan for the next year it's in your hands yeah what do you do well you know really that's there's so much that it was once in a panel the conferencing Manchester and is uh and the question of the floor is when will you be our prime minister and there's great Amusement of that but you know that's never going to happen that I I think the agenda at the moment is horrendous because if you were if you were had um presidential control and direct Authority then maybe you could do something but at the moment the Tory party is driven with factions you've got ERG and you've got hard brexit years and you've got those who really have the commitment to to welfare for example there are so many issues which will not be addressed when we talk about for example leveling up agenda we have to accept that in terms of leveling up the child poverty rate is 40 in Rochdale and it's four percent in Richmond you tell me a strategy that's going to address that problem and until we start to look at the issue of child poverty then we won't understand how child poverty feeds into lacks education means low industrial perform economic growth it feeds into Healthcare issues which feeds as the burden on the Health Service it feeds to drug abuse it feeds to alcohol abuse so attacking child poverty is so fundamental but we see nothing in government stands for five or six years now even getting to grips with the problem of child poverty so you know the issues are enormous and the problems of execution are even greater so I would not I wouldn't take up that mental specifically I'm afraid at the moment okay it's interesting uh it's a hey talk about those things you know one thing you didn't mention there was intervention um you know and maybe before we get on to you know one of the questions are kind of looking around what about what businesses can do to help buffer themselves just a question asked by a schoffner any do you do you think the support measures that we've seen by the government are actually helping are they lip service are they just delaying the pain what do you think but when you look at what happened with Kobe it was a standing the the way the government did step in in terms of the the shutdown in the economy but also the introduction of the furlitz scheme because had that not been put in place then the the unemployment levels would have been horrendous I mean there would have been real really difficult okay but they may well have recovered but nevertheless the government to step in with um with the fellow scheme was quite significant no we had the energy crisis and the government stepped in to support in terms of the energy situation with this 40 50 billion 60 billion spend to support household prices but that kind of stuff can't go into it forever organic maybe you can but I think the some of the intervention schemes are really uh patchy and small scale so looks like we're going to lose the opportunity for electric vehicles and also that's why you know British built is going to run into trouble because that gamble won't pay off but when you take away the rationale for basing in the UK for the car industry specifically with no clear access to Europe you know why would the Japanese for example invest in the UK when they can equally invest in Europe not direct access to the markets so I think that um yeah intervention small scale intervention the government should address the issues of uh okay the fundamentals of Education Healthcare but also infrastructure spending on Rail and on on road um and on flood defenses and on new energy sources that's where the money should be going not small scale intervention to say about one plant here or another we're used to that um you didn't you also didn't mention about uh you know more borrowing you know you've mentioned about um kind of soonax trillion dollar banknote before trust and you know the question from Tony around trust and courting they didn't didn't find a money tree but got a money for us and got hammered by the markets do you think that means the era of Limitless government borrowing is over and what might and what impact is that going to have um well I think that you know as I say with trust and quieting quite that they came to into office with a radical agenda and didn't pave the way no sending path but it also as I say you know that suggested the bank of England remake was going to be changed but they weren't happy with financial regulation in the markets they weren't didn't need the role of the obr for the forecast to support the forecast growth weren't happy with the city of London so if you come in with all that stance and you present an aggressive agenda that hasn't been really thought through or so to reading their own by benches then you're gonna run into trouble and the cynics would argue that basically the bank stood back and uh foreign investors stood back and let it happen and the bank were embarking on this process of quantitative timing as we now call it um just as more demands were being placed on the markets so yeah that was a problem of their own making and I think they were hijacked as they wandered into the jungle uh saying that they weren't happy with the performance of the wild animals that got them into real trouble so here now you have a situation where the banker embarking on QT why now it can't be possible to do that because the demands on the guilt issuance is going to be so great this year and next year and for the years ahead there's a lot of capacity for absorption uh internationally with the girl market so we've seen that uh um investment going on in the U.S and equally it will continue in the UK so there's not an end of an era there may be a reversion to normality of 4.5 guilt rates but even that looks like to it's uh going to be some way ahead at the moment as the Market's reversing to about three percent growth so no there were no no change in the issuance issues but the bank won't be able to dump the guilds that they've got at the moment and I think the QT is going to be slackened um of notes couple of months well look you've given us your your CEO message at the start you've given us your Prime ministerial and Chancellor speech yes it's going back to one of the first questions I think asked by Michelle what are the key things then that businesses can do to ease their way through the next year and then link to that what is it that consumers can do well you know from a business point of view it's tough it's always tough when things are really great I remember in the late 80s 88 89 we thought wow this is fantastic you saw the number of jaguars increasing in the in the village in which I lived at the time and business was just great it was there to be enjoyed but it was a short filled fantasy because the reality is for most businesses it's a tough grind to get through uh so many challenges that have to be faced so you've got to do your scenario planning and you've got to do your uh outlook for growth could be you know maybe one half percent down next year or it could be a half percent up on all that can meal for most businesses that doesn't mean a great deal in terms of impact you know if revenues Fall by one or two percent it's not you can easily absorb that but it's a question of having that scenario plan as what could happen to um demand and the top sales line level but also what's happening to the cost curve and also what's happening to um to interest rates so you really got to model your interest rate scenarios which incidentally the pension fund Market did not do with the ldi strategy so yeah scenario modeling examining the cost curve make sure you're repricing you have to reprice make sure you've got your labor strategy in place and fundamentally look at your gearing and interest rate modeling and also the problem is as we see with government when the Top Line drops so often the cost line carries on increasing and that's why we're seeing a radical adjustment in headcount levels in the tech sector at the moment in the US not just in Twitter but in Amazon Google and even Apple so yeah it's always going to be tough in business but you've got to do star remodelings exam overall look at your gearing and fundamental challenges of higher rates which could be here to stay for Ohio cells well it's again it's going to be difficult because the challenges of energy prices specifically and this issue of eat or heat is going to be so critical and the risk of unemployment also looms larger than it has done for a couple years yeah you just I mean all reflection you normally shower us with a little bit more optimism than that but um you know one of one of the Optics and just picking up on a question asked by Steve is that you know some of the dates you presented shows that maybe you know EU Trends particularly EU inflation maybe UK inflation you know we're lagging the US by about six months do you see that should we should we be looking to the US or other markets as that indicator of where we're trending or are we just out of kilter in the UK no I think I think it's always a good pattern to look at what's happening in the US because you know geographically the UK sits between Europe and the US and if you look at the you know look at Sterling don't think as Sterling as being a prime mover it's really Embroidery in that trilogy of the balance between what's happening especially with the dollar and also with um with the Europe but in terms of um interest rate policy yeah the markets are watching closely what happens with the fed and in terms of um interest the you know the unemployment levels the vacancy levels challenges of recruitment exactly the same in the US at the moment as they are in the UK so we can learn a lot by watching the US without being carried away as being a clear predictor but there's so much happening in the US that is the same problems in the UK and fundamentally you look at the world macroeconomic view that Russia may have dropped out the top 10 economies in the world but the UK is still buzzing along there between six and eight place but there's no place to be on its own it really um would be extremely difficult to find those new mythical markets behind the magic wardrobe in the Snow White Wonderland oh I got my I got my fairy tales mixed up I think so but it but in terms of us navigating that um you know navigating that part of the UK and Stephen highlights the point just saying well you know are we are we pulling in different directions or is the current Independence of the bank of England and it's remit to maintain two percent inflation is that counter-intuitive to grow the economy is there a is there a tension there that we just won't be able to fix without some kind of jolt somewhere are they are they putting in different directions well I think the bank has a target of two percent but it's pretty um you know it's pretty benign in getting there so if you look at the 70s and the 80s 100 is inflation averaged about 10 and base rates were five percent and then what we found is by the time we got into the second decade inflation was around 10 but base rates were averaging 10 they had to adjust so you've got currently inflation at 11 in the UK and base rates at three percent that's not being globally aggressive to deal with the issue in everything that's still behind the curve so I think the bank gets a lot of criticism uh but they were in this magical world on planet zurp where rates were brought down to zero and even talk with negative rates what nonsense was that now we're seeing a reversion to reality for uh markets in terms of guilt markets and for um Central Bank uh interest rate level for interest rate levels and fiscal policy monetary policy so this is a return to normality we shouldn't really worry about that it's there to be we're understood and well accepted so the bank yet get criticism but their remit still stands and they wouldn't go too aggressively even into next year according to the Outlook at the moment the real challenge is for a government to get its house in order I think by new inter you know this stage of a conservative Administration where so many people have been in office and out of office that you're not left with the pick of the crop now to choose from for your ministers all right now John that that makes a lot of sense a lot quite quite a few more questions coming through here so I'm just going to do what I can just to get them to you housing first of all um you know that's one of the topics we you maybe didn't touch on as much there's been a lot of speculation around that a lot of you know speculation around collapsing in the housing market um do you see that happening do you see that coming I can't see it coming on the scale that you know with the headlines are there to 20 and 25 plus which when you look at the small print in the forecast says in the worst case scenario if the world words come to an end and the economy dropped by 10 then it could be that has probably dropped by 25. the fundamentals of the market are uh shortage of Supply increasing demand um but there are issues of Leverage in terms of especially with the cost of mortgages Rising as the the audio at the moment so I think JL came up and said a forecast which was suggesting uh the the average prices could drop by about five percent next year but they're coming off quite significant highs anyway but thereafter it will kick back into year in the year after into 20 24 and 25. so yeah there's going to be some easy in the market because a lot of pain especially I think the bank estimated there's some like uh 700 000 mortgages coming off fixed rates each quarter through next year and that's going to be a big shock which means that you know and there's a big big adjustment being made for a lot of isos so yeah some slowing in demand some slowing in house prices but no big setback and over the medium term they're still looking good so no claps that's probably a relief to most people here um a couple of questions around kind of digitization you know one of the risks that we've called out in our own preterity top risk surveys around the risk of digitization the impact that has on businesses kelvin's asking questions around do robots and automation um Trump a relaxation in migration when seeking to increase productivity and indeed you know what's that I guess linked to that what's that long-term impact you think of the increased desire to digitize and to automates but you can't get away from the process of uh digitization and uh the growth of cloud and so on so that's got to be continuing rubidization is happening at PACE especially into the things of distribution in terms of manufacturing that's already been happening talk of putting robot cleaners into the NHS that looks to be a bit more speculative and doesn't quite promise to yield the same results but there will be inevitable um digitization move to Cloud um increase the increasing automation robotization um AI we're not going to touch on AI where a big processing progress in terms of artificial intelligence so yeah these are all critical Trends but a lot of the basic stuff you know the robots picking fruit or the robots dealing with patients that's going to be far more difficult so big demand for labor will um will will still be required increased levels of immigration and forget productivity I I think productivity is an output number you have you have the sort of growth divided by so output y as we call it divided by L labor equals P productivity productivity is not a driver it's a simple output of the arithmetic of output and labor intention so you know increasing productivity we'll see as we get higher growth and at the moment there's no strategy for growth okay I'm going to test you now from one other particular Market sector question from Steve around the it security Market to finish us off whether you have a view on this his experience has shown the last 12 months that threats often increase in climates like this so kind of cyber risk resilience risk which in turn creates some resiliency in in his particular sector do you have data around this do you see businesses collapsing do you see you know what's your view around you know the impact of it security and the threat to the market for things like that well I think the the the the the the we don't have a lot of data on it but what we do know is that uh the the sophistication is increasing in terms of the the hackers and the the the fraudsters so we've got to be ever more Vigilant and I think you know you've got to in my case I have three levels of email so for different circumstances so at the high level for involving monetary issues a mid-level for private issues I want to keep private and the rest is at risk of junk so you've got to be more Vigilant and we hear scams so often about you know the letters coming in from the guy in Nigeria was this incredible opportunity but on a broader scale challenges to business uh from fraud and so on you've got to be so it's got to be boom time for the security guys because um the level of of Fraud and sophistication and fraud is just increasing at an incredible rate absolutely um John that takes us to the top of the hour um I'm very very sorry if I didn't get to your question I think I got to most of them but look if you like what you've heard from John today um please contact us as a application Robert Half we we will be delighted to carry on the discussion John thank you so much you covered so much ground there and you know so many there's so many comments in the in the uh in in the chat saying people you know like very much like what they see and and the and the charts that have gone with that if you like that you can see more of that on John's website the Saturday economists and all the regular updates he's mentioned um there'll be a video of our Forum posted today on our website so please feel free to share that with your friends and Linkedin contacts I hope that's been valuable to you all um it seems so very timely to be doing this and we we will continue to do them as I'm sure there's more economic turmoil to come thank you so much on behalf of my opportunity Robert Half team here we extend all our best wishes to you um stay safe people be kind to each other and we look forward to catching up with you again all very soon thanks very much everyone thank you for your questions thanks Paul thank you everyone thank you very good

Global economic outlook

The world outlook showed lower growth with higher inflation, higher interest rates, higher taxes, and higher borrowing in the early part of the year. In addition, a blend of pandemic shock disrupted supply issues, and the war in Ukraine has presented us with a challenging environment for growth.

The International Monetary Fund has been gradually reducing their growth projections; UK economic growth started the year at 4.4% but slipped to 3.6% in April. It slowed again to 3% in July, but the latest October forecast is slightly better at 3.2%.

Inflation across the EU, China, and the US

There’s hope on the horizon where global inflation is concerned. Oil prices have eased and are now trading at a lower cost of $86 a barrel. Gazprom is still squeezing European gas prices — they’re still at a historical peak but could drop by as much as 30% in the first quarter of 2023.

Shipping costs from China to North America have rapidly declined, falling by as much as 90% in the last year. The price of grain has also eased given the passage of product out of the Black Sea to the rest of the world.

Trading and the future of the global economy

World trade growth sits at 4.5% compared to the 10% bounce back it enjoyed in 2021 and could ease even further next year to about 2.5%. John says, “This pattern of slowing world trade and easing of prices to a certain extent is going to ease the inflation outlook for the world and even for the UK economy into next year.”

In China, forecasts have been falling, with 3.2% growth expected — down from earlier estimates of nearly 5% due to the ongoing COVID crisis. Likewise, the US has lowered its growth forecast for this year and into next year. Inflation currently sits at 8%, with an expected slowdown to 5.5% next year.

Growth forecasts were also lowered in the EU, with the European Central Bank (ECB) trailing behind the inflation curve at 10.7%. John expects this inflation to rise, given the squeeze on gas prices in Europe, and believes the ECB will need to raise rates even higher.

UK economic outlook

The newest Office for Budget Responsibility (OBR) forecast shows expected economic growth of 4.2% this year. However, the cost of housing and household services rose by 11.7% in the last 12 months, with UK households paying an average of 88.9% more for energy bills, according to ONS. This has been compounded by the wage freeze, set in motion to help prevent a 1970s-style spiral.

Inflation

Inflation currently sits at 10% in the UK, primarily driven by the energy crisis caused by Russia’s invasion of Ukraine. The cost of oil is predicted to average at $95 through to the end of the year, which should cause deflation into the first half of 2023. The Bank of England has raised interest rates to 3% to help tackle rising rates of inflation, which they predict will drop off sharply from Q2 of 2023 onward.

Labour market

Inflation of unemployment sits at 3.8% (1.3 million people) and is predicted to rise to 4.2% (1.5 million) by 2024. The health and social sector, accommodation and food sector, and retail sector have been hit hardest. John states that these figures should be taken with a pinch of salt, given the high number of job vacancies in the current market.

Half a million people left the UK during the pandemic to return home to Europe, which has left a gaping hole in the workforce. This has compounded recruitment issues in health and retail, and has prompted calls to shake up immigration laws to help fill staff shortages.

Trade

According to John’s UK economic forecast, the UK will continue to see a surplus in services and a deficit in trading goods, which goes from £150 billion this year to £230 billion in 2022. This brings the UK’s net trade deficit to £80 billion this year.

John says: “The deficit in trading goods is increasing in terms of both EU and non-EU. The deficits overall means that the trade balance looks bad as import surge in and UK exports lag.”

Market summary

Global markets have seen a big correction from overvaluations at the start of the year. The US market was nearly 30% overvalued in January and has since dropped by 34%. France and Germany have dropped down by almost 20%, alongside the Asian market, which is down 10%. The pound plummeted after September’s mini budget, causing a selloff in gilts, and sending a shock to UK pension funds. However, this evaporated as gilt yields reduced.

“Is this a UK recession? Well, not yet. But we are braced for higher prices, lower growth, higher rates,” says John, “and maybe we will be slipping, but it could be a relatively modest setback for next year.”

Planning for the future

Top 3 points of focus for businesses moving into 2023

With such a wide range of variables on the table in this UK economy forecast, John advises business leaders to focus on three key areas. Firstly, he recommends continuing to look at supply and pricing in 2023.

He says, “the major challenge at the moment is coping with the supply shock and coping with the challenges of rising prices, the extent of product elasticity, and the extent to which those can be passed on is obviously critical.”

John also recommends that businesses focus on smarter recruitment strategies. Tackling challenges around recruitment and retention will be key, as well as finding ways to motivate the younger workforce.

Keeping cyber security front-of-mind during economic downturns

According to a survey for the UK government, 39% of businesses identified a cyber attack in 2022, the most common being phishing attempts (83%).

“The sophistication is increasing in terms of the hackers and the fraudsters. So, we've got to be ever more vigilant,” says John. This is a crucial time to increase cybersecurity precautions via staff training, robust security software, established security protocols, and specialised IT and tech talent.

Embracing digitisation and automation

“You can't get away from the process of digitisation and the growth of cloud,” John says. “Globalisation is happening at pace, especially in terms of distribution and manufacturing, that's already been happening — they’re talking about putting robot cleaners into the NHS.”

Although digitisation is crucial as we move into the future of business, John still feels it can’t compete with the demand for human labour. He expects continued pressure on the government for a relaxation in immigration laws to fill the labour deficit certain sectors have been experiencing since the start of the pandemic.

For the latest news on the UK economy, visit Dr John Ashcroft at The Saturday Economist or find expert advice on planning for the future of work at Robert Half. For more interactive discussions with industry-leading experts, join Protiviti’s Tackling Tomorrow Today series.

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