A shallow recession?
“What we’re looking at is a shallow recession balanced quite evenly between the consumer and business sides”, Philip explained. “We think the economy will be difficult for 18 months or so, and expect it to contract by up to 1% from the peak to the bottom of the cycle next year. For comparison, the economy shrank by something like 5.5% during the financial crash of 08-09, so that’s what we would call a deep recession.”
This is a welcome prediction given how many of us have been expecting a crash of seismic proportions, but Philip was keen to stress that even a mild recession will likely be the last straw for many businesses in the wake of the pandemic, especially when considering his predictions concerning interest rates and inflation.
“It’s not all about the recession”, he explained. “It’s about how difficult the business environment is and if you can get decent growth over the next year…Interest rates are rising sharply and, while your business may not have much exposure, your customers likely will, so that will have an effect.” Philip continued to clarify that he believes interest rates won’t peak until next year, so keeping an eye on them will be vital for businesses hoping to weather the storm.
“In terms of inflation”, Phil added, “we’re thinking it will peak this year at around 10.7% and come down. But we have a couple of things mitigating that at the minute. Employment is still rising so, although salaries are failing to keep up with inflation, we have more people in work. Consumers are also saving more money after the pandemic, and a lot of the money they made during lockdown is still in their bank accounts. That means we have a bit of a cushion there that can absorb that higher inflation.”
Listen to our entire conversation with Philip here for an in-depth evaluation of current events, a look into the nature of the recession and the primary issues it will present, and when we might see an upturn in the economy.