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

By Robert Half on 11th July 2022

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.

Economic update with John Ashcroft:

1. Global economic outlook

2. UK economic outlook

3. Market summary

4. Planning for the future

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

Visit The Saturday Economist for more information on John’s economic outlook or plan for the future of work with expert advice from the Robert Half blog. For more interactive discussions with industry-leading experts, join Protiviti’s Tackling Tomorrow Today series.

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