UK economic update: John Ashcroft shares his forecast for the challenges ahead

Economic doom and gloom never seem far from the headlines but are things as bad as they look? Is there a way for business leaders to work within current economic circumstances to stay afloat?

Protiviti recently hosted an economic update with Dr John Ashcroft (The Saturday Economist) as part of their Tackling Tomorrow Today series. Protiviti last spoke with John in March, when UK inflation was forecasted at 7 percent and UK growth was estimated at approximately 4 percent. Needless to say, a lot has changed since then.

So, will the future be brighter? What effects can we expect to see from the war in Ukraine? Is there a UK recession to come? John revealed his predictions and the impact they might have on our businesses, markets, and pension pots.

Global economic outlook

The future of the world economy is trending towards higher prices, lower growth, and higher rates. The good news is that there's no proof of an imminent recession just yet. John predicts a move away from zero interest rates, bringing normalisation in its wake. This has triggered panic across global markets, causing business confidence to fall and investors to spook.

“What we're seeing is a reset,” John says. “There was nothing in the labour figures to cause any alarm. But it was just the way the market reacted.”

Inflation

A series of global incidents blended with international tensions have put pressure on inflation and price levels worldwide.Central banks caved under pressure and hiked the cost of borrowing, with the US Central Bank increasing interest rates by 0.75 percent and the Bank of England increasing its base rate to 1.15 percent.

The Ukraine invasion has impacted price levels worldwide, and the squeeze in Russia has put pressure on the prices of oil, gas, and grain. "As if that wasn't bad enough, we've got problems with China threatening to close the Taiwan Strait," says John.

The future of the world economy

China is predicted to overtake the US as the largest economy by 2030 and is likely to double in size by 2035. The Asia Pacific region represents 35 percent of world GDP, and John predicts this will cause a swing away from dollar dominance over the long term.

UK economic outlook

Growth was up nearly 4 percent year-on-year in the April forecast, with no indication that there may be problems on the horizon. Analysts generally expect 4 percent growth this year overall but the 2.5 percent prediction for 2023 is beginning to look a little punchy.

“Honestly, we're not quite sure what’s going to happen this year — growth may fade into the second half as a result of the consumer squeeze. But a lot of the manoeuvring is because of the tax rises to come,” says John.

Inflation

According to the Bank of England, inflation is forecasted to peak this year at 10.2 percent before falling next year, eventually reaching a semblance of normality in the years ahead. John says, “if you wait long enough, by 2024, everything's back to normal, and it all looks hunky-dory.”

Millions of UK households are feeling the squeeze as living costs continue to rise. Research firm Kantar reported a £380 increase in the average annual UK food shop this year — over £100 more than last year. This is on top of the £700 increase in energy prices per household, which hit UK homes in April.

Oil prices

The impact of trading at a higher price of $115 a barrel through the second quarter means that the YoY rate of change sits at 67 percent, but this is set to fall by 2023. John says, “by the time we get to Q1 next year, the rate of change means that oil prices are falling year-on-year, even though they may remain just under $100 a barrel.”

This had a knock-on effect for UK households, pushing fuel costs to more than £100 per tank for the average family car. The Guardian reported costs of 182.3p per litre for petrol and 188.1p for diesel as of early June, making basic travel an expensive luxury for many people.

Labour market

UK unemployment currently sits at 3.8 percent and rising. Despite this, there are currently 1.3 million vacancies listed in the UK economy, with the majority in the health and social sector.

“As inflation falls, we predict earnings figures will fall accordingly,” says John. “So lower growth, especially in the second half into next year, and higher inflation moderated by Bank of England rate rises.” John predicts that unemployment figures for 2022 will finish at 1.4 million and says the impact of an economic squeeze is more likely to affect vacancies rather than the number of unemployed.

The UK government has discouraged business leaders from inflating product prices to cover wage increases for employees. Although 82 percent of people think they should have a wage increase to counter the rising price of services and goods, policymakers have warned that a boost in pay could trigger higher inflation rates and a wage spiral.

Trade

The UK trade picture will continue to deteriorate, especially in trading goods, despite the surplus of £135 billion in services. John predicts a forward interest rate curve and higher base rates as the bond markets normalise.

Brexit has exacerbated the issue by depleting the number of available workers and damaging trade relations with the rest of Europe. Mounting paperwork, costly VAT, and transit delays have made it difficult for UK businesses to ship overseas post-Brexit, thereby cutting off access to a large market.

Market summary

The markets are seeing a return to normality after starting the year with the Dow, S&P, and NASDAQ overvaluing at over 20 percent. In the months since, American markets have plummeted.

"We've seen a reaction in Europe, specifically to the war in Ukraine, and also the reaction to China," says John. "When we look at markets now, they're reflecting more of a fair value.”

Despite Government’s promise of special visas and low business taxes, Stirling has taken a tumble in the global market and UK businesses may find it more difficult to attract investment from foreign companies.

Planning for the future

Despite the negative headlines, John believes that business leaders can steer their way through the current economic situation with the right forecasting and planning initiatives in place.

Risk analysis

Businesses with overseas supply chains should fall back on full risk analyses. John advises business leaders to accept and understand the potential for radical change in trade.

“We don't know when the next crisis is going to occur,” says John. “Some of this stuff is just going to work its way out of the system, so it’s a question of really working those supply chains and making sure you've got good links in place.”

Identifying lucrative opportunities and positive outcomes

The outlook isn’t all doom and gloom. John points out that the interest rate changes are a return to normalisation, which is good news for pension fund deficits. He also feels that new technologies and innovations give UK businesses an excellent opportunity to grow.

“There are so many exciting new technologies that are coming on stream, especially in terms of alternative energy and electric vehicles. We've got to make sure we're well-positioned to profit from those.”

You can watch the full Economic Update event with John Ashcroft here

okay so good morning everyone once again and welcome to this productivity and quarterly economic update part of our tackling tomorrow today series of 2022. my name is paul middleton and i'm joined here today by my colleagues from pativity and our sister company robert half it's great to see you all here and especially to see some familiar names and faces um today we are talking about the future of our uk economy and our global economy last time we spoke with john it was back in march when uk inflation was forecasted to be just over seven percent and uk growth was estimated to be just under four percent it seems like a lot of change in the last three months since we last met with john and economic doom and gloom seems to be never far from the headlines so what does the future hold for us can we expect some better news what's going to happen to oil prices fuel prices gas prices grain prices interest rates and what effects the war in the ukraine going to have how will the biggest fed rise in interest rates since 1994 affect the global economy and i'll be tumbling inevitably into a uk recession so we'll be exploring what that means for us day to day and what i mean to our businesses what that means to our markets and our pension pots as well so to answer all these questions and to unpack all this and more importantly to answer all of your questions i'm delighted to welcome back dr john ashcroft as some of you may remember from john's previous appearances on our collaboration forum and and previous quarterly economic updates john specializes in economics strategy and financial markets working with professional firms large corporates and small medium enterprises john is the author of the saturday economist his weekly blog published on a website of the same name that some of you may subscribe to discussing the uk and the world economy and my my team will post a uh a link to john's website in the chat um so 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 since march now it's time to bring john back and to give us an update and a particularly timely one as i said off the back of some of the fed interest rate rises we've seen john will be presenting his thoughts using some slides so if you have some questions or comments please put them while he's presenting in the team's chat bar as we go and and we'll take it from there now we'll be equally at the end of this conversation if you want to ask john questions please just come off mute i'll stick your hand up um but the key thing is for you to get involved um this is your session and so the more we hear your voices the more we have your interaction the more you will get out of it um john will probably speak for around 40 minutes so we'll have plenty of time after that for questions but whatever you do as i say please get involved as it's infectious and this is your forum and so you can direct it where you wish it to go so john great to see you again thank you for joining us and over to you you are gonna have a shower john we can't hear you i'm the best way to get up and wake up let's have a shower i'll have some breakfast done john we can't hear you you're mute not your mute again john that's uh sorry everyone just bear with us while we uh just while we resolve these technical difficulties john is it worth you trying to look i don't know if you can hear us but if you if is it worth you trying to log back in see if that works okay all right well um apologies for the delay everyone while john does that we'll um wait here and we'll sooner hopefully soon be back online as i say thank you all for joining us on this this is this is part of a regular forum that we have a regular quarterly economic update and say we thought it was very timely to have this now um just given everything that's been happening in the markets and uh obviously all the economic headlines that we're seeing so i can't build this up too much because i guess i'm hoping that john's going to be able to join with it and we'll be able to hear him gary there we go he's back hello john can you hear us how's that excellent john we can hear you i was worrying i was gonna have to sing a song there or something like that to keep people entertained but um we're good that's fine okay i'm not gonna share my slide deck then that's right yeah go for it john okay sorry about that technically okay how's that that's all good john over to you okay cool okay so as paul was saying we're going to look at the world outlook this morning and also look at the uk outlook and also have a look at a market summary because it's quite interesting especially with the fed move yesterday which had the markets in a bit of a flap on monday when word was leaked out that there could be a 75 basis point move so generally yeah the world outlook uk look market summary and the labor market mix and we talk about a global recession big question mark not yet but brace for higher prices lower growth and higher rates and the good news is we're leaving planet zerp we've been talking about this for a long time now but planets are the world of zero interest rates but it looks like we're definitely on the move but this is bringing about this is what we call normalization two years ago in 2019 in fact i was calling for a worldwide moratorium for higher in the world and what we're seeing is a reset so nero panic but the markets are panicking so wall street stocks in birch directory it says amid fears of inflation the european central bank is panicking and announced emergency meeting to discuss the market route this week europe is prepping for a trade war no one wants because of boris johnson's maneuvers in northern ireland uh weak uk pay and jobs figures hint at tougher times ahead said the guardian this week actually there was nothing in the labour figures to cause any alarm but it was just the way the market reacted business confidence tumbles to one year low as the cbi and the chamber of commerce uh push for uh action from government on taxes especially corporation tax next year so the cbi is warning on household spending with the big income squeeze for households and there are growing fears about inflation putting pressure on central banks and u.s inflation as we know is hit 8.6 that's a 40-year high so investors are spooked and they're selling sterling and sterling was trading at 121 just under yesterday and of course if you're into crypto then the music has definitely stopped to take the words out of that great us film and the fed yesterday the fed hiked its benchmark rate by 75 points the the the german power is determined to stamp out inflation so this is um george soros setting the movie in davos in march you all for coming this is the last i was meeting because of his history that so dramatically russia invaded ukraine that has shaken europe to score the european union had been established to prevent such a thing from happening even when the fighting stopped as it eventually mustered the situation will never resort to what it was before the invasion may have been the beginning of the third world war and our civilization may not survive it and that's the subject well it's a good thing to laugh about it really so it's the beginning of the third world war and the end of civilization as we know it what he was talking about there was the suspension of the move to reduce global warming so central bankers are getting hit and criticized for missing the inflation message this is pearl janet yellen putting on the coals certainly as the president says inflation is the number one domestic economic problem facing the united states right now but it wasn't just the president who got it wrong a year or so ago i want to play for you what you said about inflation last year listen to this is there a risk of inflation um i think there's a small risk and i think it's manageable i don't anticipate that inflation is going to be a problem but it is something that we're watching very carefully yeah good to know they're watching it very carefully so girl janet yellen getting hall there so what we've seen is this pandemic shock in the first round then the economic shock that came with that the seismic shock as demand recovered but supply didn't get quite in place this is our graphic from last year when we talked about this disruption between supply and demand we had the first inflation shock when the prices were escalating as a result of the bounce back and then the shock of war then comes the second inflation shock and we see the invasion of ukraine which is causing great problems uh obviously for the ukrainian people but having a significant impact on price levels around the world putting putin in perspective it is important we talked about this in march that he is involved in a bear hug russia outside the top 10 in terms of gdp and in terms of military spending compared to nato it is being outspent by a ratio of 20 to 1 with 50 billion to spend in russia and over a trillion would spend across nato countries but nevertheless this squeeze is leading to pressure with oil gas and grain and we talked about global conflict and global tensions as part of our wall of worry all through last year when we look at international conflict as if that wasn't bad enough we've got the problems in south china sea and china now threatening to close the taiwan strait good luck with that one so moving on to the uh world forecast we saw in the latest forecast in january the im the imf were forecasting growth of four point four percent in in uh for the for the uh world economy this year by april it would reduce to three point six percent they're not due to forecast till next month but it looks as if it could be down to three percent or even less nevertheless is where and this is where the oecd are three percent this year and maybe three percent plus next year maybe a slight downgrade possible but when we look at country by country there's a lot of information which will be up on their website if you want to check it all out when we look at the forecasts around the world both for this year and the next christina lina giorgiova warned of lower growth and higher inflation and so it is the impact of inflation on stuff like nickel coal wheat corn platinum and so on these are real problems compounded by the fact that russia and ukraine account for 30 of wheat exports and 15 of corn imports and we see the problems now with the sunflower seed oil with fertilizers india threatening to banning exports of grain malaysia not sending any chickens to singapore because they're worried about output capacity as a result of the fertilizer crisis so the imf boss has warned over food prices and has warned persistently about the real problems about in africa with the problems of hunger and word from some of the emergency regimes they're no longer providing food to the hungry it's being diverted to the starving which is a shocking uh condemnation of what is happening in uh in the black sea at the moment when we look at oil prices oil prices have been trading at 120 dollars a barrel lots of forecasts to look at bottom right you see that gomens are calling for 140 to 130 in q3 and q4 with morgan stanley at 130 to 120 and citibank about 99 to 85 dollars we think nevertheless if it's a call that especially with the fed announcement yesterday that oil prices would come off the peak and start to trade lower we see it in gas gas peaking again as russia squeezes europe and also with grain prices and also with metals copper price and so on the general view is that the worst is will ease the year-on-year increases will ease into the second half so here's uh look at energy when you look at food prices you rightly rightly pointed out too uh there are elevated levels does it get worse from here can we start to see a peak when do you expect things to peak out i think again it's better from here and if you're looking at things on a period on period measure there you go you heard it from the man himself it gets better from here but nevertheless trade destructions do continue especially with continued shutdowns in in in shanghai in china and the good news is there's been some alleviation of shipping costs where they've come off the top from august last year no trading just above ten thousand dollars to get a container from asia to north america also good news on world trade uh big bounce back last year 11 in 2021 and we expect world trade to grow by about five percent plus this year given the strength of world growth overall so this is not a recessionary scenario obviously wobbles about china this is where china stands in terms of the world economy second largest after the us but china growth this year was expected to be about 4.5 percent by may uh it had been downgraded to about 4.4 percent jp morgan have it in at 3.7 and ubs at three but generally uh this is bank of america uh and saying that the gdp economic growth was likely to fall short of its target what is your forecast for china's economic growth this year we currently look at the 4.2 for our uh baseline case scenario but we have admitted that there are increasingly more downside risk to this number and therefore we have already been yeah so here a lot of the possible downside problems in china but it's important to see through the noise a lot of noise in terms of the the press and the reporting coming out of china at the moment but it will overtake the us as the largest economy probably by 2030 maybe a bit later now and it's going to double in size still by 2035 and the asia pacific region is so significant for uh world activity uh that it is dominates bigger than the usa north america and bigger than eu as we've always said and this swing will move uh out of the dollar despite the dollar strength at the moment uh this is gida gopro nothing if you asked me today about does this imply the imminent demise of the dollar i would say flat out no yeah certainly not but what we will see is a swing uh with um away from the dollar dominance in terms of world activity uh over the medium term then we look at what's happening in the usa this is jerome pope yeah he always does i want to begin by acknowledging him i'm not actually pulling these clips from last night yet but nevertheless this is what we're seeing in terms of the downgrades that are happening so where we were talking about three and a half percent uh growth in the us in 2022 and 2.4 percent next year the fed now has slashed their forecast to 1.7 this year and 1.7 next and thereafter sort of steady state of 1.8 percent and in terms of unemployment well they're talking about unemployment averaging about four percent running out now compared to the earlier estimates of 3.7 so and in terms of inflation the inflation rates reckoned to be over it was eight point six percent in april it's striking to ease towards the end of the year and the fed have it down to two point six percent by 2023 and just over two percent in 2024 will that happen well we'll see exactly what's happened to the inflation levels producer prices if you're an optimist you might say they're easing off the top in terms of consumer prices well again they're wobbling about just over eight percent at the moment the big thing is the big change in monetary policy because this was the um blue dot forecast in last time the fed met but now the forecasts have been hiked up much more significantly as we will see so the trend rate or is reckoned to be over three point five percent there for uh the fed funds rate compared to two and a half percent last time and the fundamentals uh will still in the medium term undermine the dollar so we see these forecast deficits of from the congressional budget office the internal deficit the spending deficit and also the trade deficit which uh despite tariffs is is increasing and of course we've got this massive debt of about 30.5 trillion here's a fun chart it's the u.s debt clock which is ticking away and if you like that one then there's also the world debt clock where you can look at what's happening around the world in terms of debt accumulation so america the fed has moved they're going to slash down on on inflation they've bounce rates by 75 basis points next time it could be 50 or maybe even another seven and a half they're forecasting rates to bounce to 3.5 percent by the end of the year so what are the eu if we look at the eu again it's a similar story uh they're slashing their forecasts of growth from 4.5 this year to just over just under three percent two point eight percent and two point one percent next year the inflation rate expected to behave uh peaking at seven percent falling to three and a half percent and this is how the monthly data looks so when we look at these forecasts they're being slashed at the moment and they could continue to be slashed the important thing is when we look at what is happening to monetary policy this is our forward guidance jar which we started to do every friday but in the uk in the usa you will see that in 2022 the rate of 2.5 percent was expected this year the federal say it's going to be 3.4 rising to 3.75 next year and in the uk we expect the banking to move by maybe 25 basis points today but nevertheless we're thinking that the rates could go to from two percent which we thought uh by the end of the year to maybe as high as two and a half percent and the euro also will be forced to move so lower growth higher inflation rising rates and we've seen bond yields bounce accordingly so uh bonding is nearly 239 percent in the us and 29 in the uk when we look at the forecast of the uk then again it's a question of okay in q1 there was nothing in the april forecast that suggests there's a problem as yet growth was up nearly four percent year on year and in the first quarter growth was up by eight percent year on year last year's figures were so bad so generally analysts are expecting growth of three and a half to four percent this year the big question is what's going to happen next year because the 2.5 percent is beginning to look a little bit optimistic the oecd caused the spare when they said there'd be no growth next year at all so the forecast scenarios quite honestly we're not quite sure at the moment what is going to happen this year uh growth may fade into the second half as a result of the consumer squeeze but a lot of maneuvering because of the tax rises to come that's the trend rate of four when we look at inflation then inflation is reckoned to peak about 10 percent uh through this year towards the end of the year according to the bank of england and thereafter forecasts are expected that uh inflation will fall towards some semblance of normality but still not achieving the two percent target and of course when we look at uh this is the the bank of england forecast by quarter when they run out so if you wait long enough by 2024 everything's back to normal and it all looks hunky-dory when we look at the oil impact this is what we reckon in terms of the oil impact the impact of trading at 115 dollars a barrel through q2 means that the year-on-year rate of change is 70 but by the end of the year it actually falls to so by the time you get to q1 next year the rate of change means that oil prices are falling year on year even though they may remain uh just under 100 a barrel and this is why it's assumed that prices will ease as we get into the second half of the year in terms of the labor market the conundrum of the labor market persists um the latest unemployment figures again it was suggesting unemployment was rising it was a modest rise actually more people in work compared to the prior month and the rate ticked up to 3.8 but there was still 1.3 million vacancies in the economy which we'll look at in a moment and 1.3 million uh unemployed and here we're modeling at an employment about 1.4 million through the end of the year and into next year but it's a very confusing picture and also vacancies so if there's a squeeze in the economy then it's probable this squeeze will have a greater impact on the level of vacancies rather than directly on the level of unemployment which is a positive thing and when we look at this extraordinary ratio of the unemployment to vacancies then you can see more or less where we're at on that point and when we come to the um the vacancies by sector then you can still see health and social with 215 000 vacancies and accommodation of food with a 174 000 vacancies and retail at 161 so it's still a very buoyant jobs market even though there may be a threat to uh to consumer spending because of the so-called income squeeze and again as inflation falls then we reckon that the earnings figures will fall accordingly as well when we look at the trend rate and forecast so lower growth especially in the second half into next year higher inflation moderated by bank of england rate rises unemployment figures maybe we'll see a squeeze on the level of vacancies rather the output level of the absolute level of unemployment and earnings will moderate maybe but the bank really fears that that could kick off in a big way and when we look at level unemployment then you know there's this anomaly that we've lost 400 000 people from the workforce some have gone back to europe some would have us believe that they're all on on suffering from long covered on long term sick and some would say that the people are just reluctant especially over 50s to get back involved with the workforce the spending review we saw the what is happening to government policy on spending and tax and spending is anybody's guess we had the fuel duty kicker which did nothing to ease the prices of the pumps we had the national insurance claim and we had the promise of an income tax cut to come but then we saw the winfor tax we don't call it a windfall tax we call it a temporary targeted energy profits levy not quite as snappy but it probably uh covers the point really so and then we have the energy support measures being swept in all of these measures are just knee-jerk reactions to and sound back reactions to problems that may be emerging on a day-to-day week-to-week basis which is quite concerning and certainly what we now see is the promise of you know singapore or britain as the singapore of europe is just uh fantasy island the party opposite we have a plan a plan that reforms and improves public services yeah well it's clearly evident there's not much of a plan at the moment the latest borrowing figures suggest that the borrowing spend the borrowing activity will come down to below 100 billion dollars this year uh compared to the high of 320 billion a couple years ago 145 billion last year so generally there is scope to do something what we don't really want to see is you know we don't really want to see the national insurance tax charges going up we don't want to see the corporation tax levy going up from 90 percent to 25 this seems quite bizarre notwithstanding the level of public sector debt we didn't talk much about trade well we do but uh the trade picture will continue to deteriorate especially the trading goods situation and um despite the surplus continuing trading in services but generally you know we still have this as with the us what we call the twin deficit dilemma deficit domestically with spending and deficit externally in terms of the trade relations quick look at what's happening between the eu and the non-eu basically we traded one deficit for another that actually the the deficit with the eu has fallen but the deficit with the rest of the world has increased and imports from the rest of the world have increased as imports from the eu have just stabilized and no significant kicker despite the strength of world trade no significant kicker in terms of uk export performance uh said to say yeah well we did say this could happen and it is so here you've got the um forward interest rate curve generally brace yourselves because the base rates are moving higher and we reckon that what we're seeing in the moment what we're seeing in the bond markets is just a normalization you know inflation target two and a half percent to two and a half percent base rate should be around four percent and ten-year guilt should be around four point five percent and anything moving towards that is a process of normalization it could be painful but not as painful as it was in the 70s when interest rates averaged over 10 percent for 20 years i should look at markets now because there's been a lot of talk about what happened in the markets this is how we saw the markets in january this is published from the from the from the stuff we were doing through the year that in january we were saying that the dao uh s p and nasdaq were overvalued by over 20 we look at nine markets so three in the us three in europe and uh three in southeast asia so what happened since then is the american markets that plummeted by 17 21 and 34 percent respectively their s p and nasdaq so it's a return to monarch noaa and we've seen uh the reaction uh to uh in europe specifically to the the war in ukraine and also the reaction in in china and when we look at markets now then we think the markets are reflecting more of a fair value i am not licensed for investment advice and we're not suggesting everybody should dash in there now any more than should pile into bitcoin at twenty thousand dollars but generally the nasdaq is looking particularly over so then uh s p and dialogue for value which is why the markets reacted uh in the way they did this week on monday a bit of an overreaction to um to the fed news of a 75 basis point rise but generally you know europe france and germany looking a bit oversold and in southeast asia if you've got the bottle to make the move then there's some attractive options there it would appear but this is not licensed for investment advice so all the panic about markets bond markets collapsing it's a normalization of the yield curve what's happening to markets over valuation over extension in january and now we see a market correction and talking about over actions then we know the pound is trading at 121 at the moment and actually 104 against the euro trading 104 against the dollar so they're looking particularly oversold at the moment and the median position for the uh for for for the pound for all rather the dollar would suggest that we are moving into oversold territory but then you heard it first from me so when you look at the um um [Music] the 10-year guilts training at 341 actually softening a bit this morning so um they were down about 331 uh the 10-year bond market and the uk down a bit from 241 maybe uh but we expect the exchange rates to bounce back uh quite um quite significantly so lower growth higher inflation higher rates commodity prices easing maybe but still problems in oil and gas in europe and grain prices so global recession not yet ready to make the call but certainly we're in for a period of higher prices lower growth and higher rates and a bit of market turbulence along the way thank you john higher interest rates lower growth higher inflation lower vacancies earnings being moderated and markets looking oversold for the bold investors but so i mean john you've got a you've got a wide range of people on this call um if you were sat in front of any one of them so you were leading their business um you know with such a wide range of variables that you've covered what would be the top three points that you would be advising them to focus on at the minute and to address well that's it's that's a good question actually but i was talking one of when i had i've been offline for a bit but i was posting last week on oil prices and one of my regulars came back and said in our business we're importing wood from russia aluminium from ukraine and the phone products from germany so in that scenario then you're really struggling to to you know so i think it's a question of going back to basics you really have to focus on cash and the implications of of interest rate rises as they're going to happen you've got to do your scenario evaluation in terms of the growth patterns that could occur make sure you've got your labour recruitment strategies in place and of course everybody's dealing with the sort of just-in-time jitters which is moving to um more of a just in case provision so no you know no end to globalization but maybe uh just an extension of working capital so i think it's a question of understanding that what we're going through is a period of really normalization we're leaving planets up we wanted to get out of planet zerp we hope that the fed won't change its mind we hope that the the ecb won't uh panic too much about what's happening in italy at the moment but it's a question of you know back to basics as always and for a lot of people it's just a question of grappling through these incredible supply side difficulties absolutely and i mean that links quite well into a question was the flip side that asked by louise um if a company is working with lots of suppliers and and with saving commitments made to customers do you have any ideas on how best to mitigate that risk going forward then well again it's a question of um doing the full risk analysis and understanding the prospects for uh you know for radical uh change in suppliers at the moment are going to be so limited because of the the problems that we're seeing and we don't know you know when the next issue is coming up so we've seen this extraordinary okay the lumber crisis has eased in the us uh but now we've got uh we just had a baby food crisis in america uh we don't know when the next crisis is going to occur for whatever reason because some of the supply side issues have been stretched so thin so it's a question of working with suppliers to try to understand uh depend demand patterns and supply patterns and some of this stuff it's just going to work its way out of the system but it has been so extraordinarily difficult it's a question of really working those supply chains and making sure that you've got good links in place so as as it works its way and louise thank you for that question on there and that's just to say please you know do please do continue to put your questions in the chat or put your hands up and um we'll uh we'll tell you we'll tend to john but um you know you mentioned kind of going back to um normal whatever that is and you know haynes asked a question do do you expect that we'll be reverting back to the world of planet zerp from 2024 onwards um you know with uh for the rest of the decades no i think well you know it's difficult to say with confidence how the central bankers are going to behave but if they can get out of if they can leave planets uh they can establish the fed and i were talking about uh the long-term rate being about 39 for the fed rate uh last time they were saying it was 200 and again we were saying then it was too low really the the long-term rate for for base rates should be around three and a half to four percent really four percent plus the good news is for business you know that what nobody's really talking about is as the guilt yields rise it's reckoned that every 100 basis point rise reduces pension from deficits by uh 20 so what we've seen already is potentially a 40 reduction in the pension fund deficits and when they're when we examine the prospect of returning to to to normality we would say then it means that these a lot of the pension fund deficits could evaporate almost completely how about that that's quite amazing but if the if the central banks can establish a buffer then it means they're better placed to be able to cope the big panic was the big concern was if rates are on the floor what happens with the next crisis where do you go because qe is completely exhausted in terms of intellectual credibility and the world of negative rates well we don't want to go there so i think if central bankers can get off the floor and get urban away from zerp then they'll be happy to stay circulating at high altitude for some time to come wonderful and and thank you and for that question there but i mean that links very well into one asked by affy i mean just just just to what you were saying then john i mean how how far do you think the fed and bank of england another central banks will go to address those inflation prices how far do they should go and how far do you think they will go um while we try and avoid that recession well the interesting thing is in the 70s when inflation peaked at 25 percent in the first round uh base rates went to just over six percent and it wasn't enough so uh when the base rates rose again they had to go higher and over the period inflation averaged 10 percent and base rates averaged 10 percent so it's difficult to see unless inflation does really start to kick down and quickly towards five percent by the end of the year that really from a fed perspective in the three and a half percent won't hold it but they're only releasing it at a steady state you know they're only releasing so much information at a steady state because they don't want to panic the markets and consumers too much so the fed are going to determine to do it and hopefully we'll see some of these price anomalies just over the market without race having to rise uh too much and too soon so we do you think do you think we could be heading back towards what we saw in the 70s or are the fundamentals different no that's again that's a great a great question because what we saw in the you know leading up to the 70s was we had the extraordinary barber boom when i was i started work in 1970 and i think i uh moved to my international job in 74. but we had the baba boom when growth in one quarter in 1773 was 10 that's real growth of 10 there's extraordinary boom which led to the collapse then you have the the peruvian anchovy crop which uh collapsed we put pressure on the fertilizer prices yes that is important and then of course with a quadrupling of oil prices so i don't think we're quite there yet and we don't i don't think we'll get there at all the comparisons with the 70s are just not appropriate uh but we've got to cope with what is happening now so i think yeah it's a process of normalization and escape from planets earth and we've got to get this pressure on inflation to bear to bring it within semblance of normality and soon but you think and kind of link thank you for that and you know so linking to a question to christina then i mean do you do you think that your prediction for interest rates in the long run is we're going to see kind of three point five four percent are high interest rates going to stay for the foreseeable well the question is is do you consider three and a half percent to be high given the pro since 2008 yeah we think it is high but actually it's recently returning normality to the yield curve and to the real level of interest rates so you know if you miss a pricing capital in a capitalist economy then you're going to have certain anomalies which is higher asset prices that we've seen both for equities and also for housing and property markets so you know yeah three and a half percent is the fed call for the long run rate at the moment and let's just feed on that for the moment because that's up from 200 and it could drift even higher be interesting to see today what the bank of england decides to do uh because they're still more um compared to the very aggressive fedmo it's interesting where they are you know the fed now very aggressive ecb is still very nervous and the bank of england uh not quite sure where they should be just at the moment absolutely um just maybe shifting over there so so rupa asked the question you know the recent book from irving king suggests that we're living in an age of radical uncertainty do you think john there's a need for businessmen or business people rather policymakers economists to build new ways of looking at the horizon horizon scanning to understand the complexity of these risks well i i think that um it's the same stuff really you've got to have your scenario planning and looking at the different scenarios that we've got so there are enough permutations in terms of the growth options into next year at the moment it's looking like there could be lower growth with some easing of vacancies in the in the labor market but generally the same rules apply you've got to uh look at the possible scenarios that could be invoked and model and plan accordingly and at the moment you know supply-side logistics are critical to um to to um to understand and understand the way forward and of course you know it's you're moving with in in a what can i say in a sort of vacuum for government policy we've had bill back better that didn't last very long and now we're leveling up that's not going to last much longer i would think uh it's a question of what the next no no we're going to war with northern ireland over the eu of northern ireland yeah quite sure now i mean and equally we're packing people off to rwanda but you know there's digressed but yeah it's back to the same understand the prospects look at the scenarios and plan a model accordingly yeah i mean certainly the horizon scanning is always a theme that um you know we look at from a resilience perspective other things like that so i do agree um the boldness and that horizon scanning is critical because there are a lot of different factors at play and we'll come to brexit in a minute i'm sure and let you dig into that and give you views on that but you're talking about the kind of you know the different levers that um you know the government's kind of can apply links into a question from ramsey um with food prices increasing fuel prices getting higher mortgage payments going up etc um what what levers do the national governments have given really you know we're still recovering from covert i mean you say you you've spoken about sunax um kind of trillion dollar banknote before but but what other what other levers are there and what should we be expecting in terms of government intervention well i think if you look at um the measures that could be used basically it can happen through spending or taxation pretty the two obvious scenarios if you look at the taxation scenario you've still got this for example with petrol prices this enormous tax take on the v80 and the fuel duty that actually some accommodations some larger accommodation can be made other than the 5p off of you know with 100 100 quid to fill the tank at the moment then almost half of that is going to government and so there should be some big swallow on that but we also i mean obviously the option on vat adjustments to try and bring the high level of inflation down why is doing his best to persuade the saudis to pump more oil and actually he's trying to persuade his own [Music] distributors and extractors to produce more output in the us but going back from a uk government point of view then really something could be done big done on fuel duty and some manipulation of of maybe bat rates but generally for a lot of people it's going to be taking the hit uh over the short term and hopefully you know with the right policies from central bank then we can bring the level of inflation uh down maybe towards the end of the year but certainly into next year so you're not expecting headline intervention big big bold intervention mode um the problem is i mean boris johnson is saying one thing and then the treasury is saying something else the grapple i mean why on earth we're raising corporation tax from 19 i mean 20 is a good level but why hike it to 25 given all the promises that were made why are you sort of increasing national insurance allowances at the same time increasing the punitive rates for national insurance so you know in that sense you'd like to see 20 corporation tax maybe a 50 top take for income tax and national insurance combined but there's no strategy at the moment and there's no sense of see-through on it whatsoever which is a really concerning lesson so that's interesting i think that links into a couple of politically charged questions from sukdev and tim um around you know where you see your or your thoughts around our current leaders ability to move from knee-jerk reactions to a more considered structured approach and what you would advise there um but also maybe you know from tim as well just thinking well you know if they're if if the commentators are right and seeing a new uk prime minister this autumn do you think there'll be a significant shift in fiscal economic policy particularly if soon act was no longer chancellor as well what do you thought to run that around kind of what that considered approach should be and what some political change could cause well again i think you know businesses cbi and the chamber of commerce and business iod they're all calling for the same thing some consistent policy so you've had this flip-flop on with a potential another flip-flop on corporation tax uh the obviously business won't always want more on investment allowances um they don't like to see national insurance charges but it's difficult to see that any change in the behavioral patterns for the prime minister at the moment and it's difficult to see this sort of um consolidation or agreement between number 10 and number 11 changing anytime soon so i think that's quite worrying really i can't see any change to that whatsoever and i go back to the point you know that we seem to be picking fights at the moment over the the wrong issues when the big problems that have to be faced for the uk economy so if you were their economic advisor john you'll sat down with them in a in a quiet room what would you be saying to him uh i don't envisage i would ever be that situation whatsoever it's just no i'm gonna dodge that one right yeah okay fair enough um brexit then john we you you haven't mentioned brexit so far um you know we've we we see a lot of um noise the minute around the impact of the northern ireland protocol and our economic and and other things as well i mean what what's your reading now of the current and maybe trajectory kind of impact of of brexit on um on our on our uk economic outlook i think talking to to to businesses who are directly involved in it then they perceive the situation is getting worse from a sort of relationship between the eu and the uk so it's exemplified by the fact that jaguar maybe you're talking about taking their electric vehicles to to europe and also the fact that uh businesses in europe are recognizing that the uk is just not going to be part of the forward planning it's a problem with things like the horizon education spending program that basically britain is going to be isolated out of that so anything there's a there's a hardening attitude uh that really there's almost like a the difficulties of dealing with britain are becoming too intense and the problem could the problems of isolation could get even worse so i think that you know we're not seeing any pickup in export activity to the uk or to eu rest of the world at the moment anyway but what we're seeing is the sort of level of the even the level of imports in from the eu is losing place to the rest of the world and it you know it just doesn't make sense so the fear is it's just going to get more difficult and more and uh with greater passport controls greater paperwork at point of entry and it's going to be more of a problem not less of a problem okay but unfortunately we have we have a minister for brexit opportunities so i'm sure in fact a friend of mine he was doing a presentation to german businesses saying we can identify three clear advantages of brexit one we have blue passports again two we can now trade in pension pensions and pets in imperial weights and three we can see the return of the pint pot stamp with the crayon and after that he was stumped for uh additional benefits to move on especially and he was involved in chemicals which is a big problem uh for the chemical industry well no i mean look i'll be fascinated to hear other people's views on that um again just please please put your questions in the chat or raise your hand and we'll come to you um northern line protocol john i mean is that just going to be is that just going to be a little bit of noise for the uk is that going to have any lasting impacts or should should we expect more there well hey the northern ireland it's like um you know they used to talk about buying a dodgy car a monday morning car in the 50s and 60s so if you bought a car built on a monday you'd be set with problems normally it's like buying a dodgy rubik's cube you know that will never be fit into all the colors i'm never going to drop into place so it really is so difficult to find a solution to to the northern ireland question and why i mean boris the government's breaking an agreement which it made with itself in effect uh that uh and there's dave is suggesting that the problem is it's not a true brexit it's a it's a remainers brexit that we've got with this bit deal in in northern ireland so you know i didn't i didn't see the solution to the issue and i i think challenging the the eu at the moment is not the right way forward but it's just it's just very very difficult okay now thank you john just going to move on to another question for mafi um you know just kind of looking at some of the impacts on the other sanctions we got in place with russia if sanctions were to be easing on iran and given that given what a significant oil producer do you see that having a positive impact on fuel prices um as the as we wind down our purchase of russian oil and gas is that something we should be considering i think the big the big question is how far will two things really is how far will opec step up to to increase output and it's always said that they you know the cost of extraction is extraordinarily low but uh they weren't really they're happy to see higher prices as long as it doesn't lead to lower demand or demand destruction so the question is which is why biden's spending so much time in saudi maybe but you know is what's going to happen to opec output and what will happen to us output that we haven't talked about esg but there's a lot of esg pressure on on u.s producers at the same time you know biden's urging them to sort of become more aggressive in terms of output so the biggest fingers to oppose gonna be opec and uh and america and we've yet to see what will happen so the interesting thing is if the demand swings out of europe to china and india then actually that means to be less coming from bought from america and opec so the thing should level itself out in reality because there's no switch to demand or or supply in the medium term so what you're seeing is a big speculative spike with a lot of profiteering at the moment so i think you know bigger output swings from opec and from the us and also some normalization uh once europe um or russia stops putting a lot of pressure on gas deliveries into into the you see it more generally take policy rather than opening up new countries like iran yeah because they've got it's like you know the the the wells are there ready to pump and they're not pumping because they just want to take they like the prices yeah now okay so john you mentioned uh esg um yeah uh we've we've talked i thought i'd mention before you did that no you know still don't worry you haven't you haven't you haven't managed to uh uh to veer away from this one yet so i mean you know esg is an increasingly important topic um with all of our clients here in the co-operativity robert half um do you do you think that you know these forces and including the surge we see in oil prices that you just mentioned do you think that should be accelerating the esg agenda and and do you see any signs that's driving towards a green economy well yeah i think we touched on this when we when we prep didn't we but i mean sng should always be there as consonants they've always been there as constants in terms of governance and social behavior and inclusion and so on so smg should be a constant and what we're seeing is which is what george soros was driving at really his concern was the pressure may ease because of the popularity of fossil fuels in the short term so the pressure may ease on the real climate agenda which is the threat to civilization not the russian march into europe but his fear was that this sort of easing of pressure on fossil fuels could compound the problems for global warming and i think that okay we're trying to solve a short-term solution get a short-term solution to the problem uh in the immediate term but the pressure continues and has to continue into alternative energies and if anything higher prices will make that prospective move to alternative energies easier so we know we've got real limitations and geopolitical complications with oil and gas that actually that should accelerate the plans for alternative fuels alternative energy sources and also the move to ev because the move to electric vehicles is is really strong and swinging with a collapsing near collapsing diesel pricing petrol and diesel cars and petrol fuel cars that actually there's a really positive steps forward with battery technology and so on so yeah short term hiccup but the pressure has to continue but we also have to be careful about green washing here's a new word we discovered in the last couple of months the prospect of you know imagine that bankers washing products to make them more fit for the market terrible and there you go so yeah esg terribly important short term hiccup may be but the pressure has to continue which is the point george soros was making right at the start okay um two more questions john we can probably squeeze in what what do you think um if we if we were to see a continuation of um the conflict in the ukraine what do you think the lasting damage and kind of economic impact of that is likely to be where do you see that if that continues for several months where do you you know where do you see some of those fundamentals you've been mentioning will be most impactful price of grain oil what do you what do you anticipate well the big the big issue is in the uh oil and gas first or oil more stability may return to the oil market faster than the gas market at the moment but the the real challenge is uh is agricultural products out of ukraine because in a scenario where uh the the stabilization uh russia made a big move into crimea in 2014 big move into eastern ukraine in 2022 when they pause a bit and they have to pause a bit but the real threat would be if the squeeze on output uh via odessa into the black sea continues and grain products are um are deprived in the from the rest of the world but again you know that that could be a one year issue or a two year issue so i think yeah it's it's a tragedy uh incredible dimension and it's it's set the pattern for uh geopolitical challenges for for a few years years ahead yeah absolutely john let's as always um you know it's good to finish this with a dose of your optimism so you know where where is their opportunity where are you optimistic in terms of where we're heading from an economic perspective what would you what uh what soothing words would you leave us with on this thursday morning well i would say the the interest rate changes are a return to normalization and in that we will find positives that consensus returning to uh to to the yield curve good news for pension fund deficits and i think that also there's so many new exciting technologies that are coming on stream especially in terms of uh alternative energy and electric vehicles and so on so we've got to make sure that we're well positioned to take uh to profit from those in the uk and in that sense we need a very proactive central government with a sensible policy and approach to uh domestic and business taxation john we've run out of time hello as ever thank you so much to everyone here thank you all so much for your questions and your input really really appreciated if you've liked what you've heard today please feel free to contact us at prativity and robert half i'm sorry if i didn't get your question but please put them in the chat or contact me directly um the particular team the robot half team or even john directly and you'll see his details on linkedin and on the saturday economist website there'll be a video of our forum today posted on our website so please share that with your colleagues your friends and your linkedin contacts so until next time on behalf of all my fertility my behalf team i once again like to thank john um i'd like to thank you all and extend our best wishes to you all stay safe be bold be kind to each other and we look forward to seeing you all again very soon thank you everyone thanks paul thank you

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