Once again the British economy stands on the verge of recession. Inflation is at its highest for almost 40 years, interest rates continue to ramp up, and energy prices are crippling household and business budgets. It will be a cold winter for us all and many businesses will fail next year, but it may not be quite as much of an extinction event as we might have feared. 

To shine a light on the situation, All Together spoke to Investec Chief Economist, Philip Shaw, in our latest Ask an Expert episode. After unpicking recent events and evaluating the current state of the economy, Philip revealed the contents of his forecasts, explained what to expect, and offered his Three Things – three pieces of actionable advice – to help our members’ businesses survive.

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Brexit. COVID. The war in Ukraine. The last three years have been a persistent cyclone of uncertainty, and that has not been helped by a conservative government that seems as lost as a toddler in IKEA. None of us expected Liz Truss’ tenure as PM to be a walk in the park – steadying a ship that has been rocked mercilessly for the last 3 years would be a test for anyone – but the efforts of her and her cabinet have been far from satisfactory. 

“We’ve entered a period of abrupt shift in government policy”, Philip explained, “which is normally reasonably transparent, but we have huge uncertainty right now with so many U-turns going on.” This makes planning ahead a near impossible task, especially for the casual economists among us, so we asked Phil what we should be looking out for in the coming months.  

Philip Shaw headshot

Philip’s Experience //

Philip Shaw has been an economist for more than thirty years, living and working through some of the worst financial crises this country has ever seen. As the Chief Economist at Investec, it is his responsibility to develop, coordinate and produce economic and financial analysis to share throughout the bank. His research and forecasts inform every decision the bank makes and he regularly shares his opinions and predictions in the press and on television. He knows what to expect in times of financial woe and has witnessed some of the best ways businesses can survive them.

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.

number 1

Don’t panic.

Doom and gloom is rife right now, but allowing it to seep in to your mindset will never be to your benefit. Form your own opinions. Take confidence from your previous triumphs. The economy cratered by 25% during the pandemic and yet we’re still here. Remember that.

number 2

Stay liquid.

When cash gets scarce, a small change can present you with a big problem. Checking in and updating your cashflow forecast far more regularly than usual during uncertainty is vital. Cash management might be the oldest trick in the book but it’s there for good reason. You also never know when the hand of opportunity will come knocking, having cash available allows you to respond to such situations, which could prove critical in staying afloat.

number 3

Try to anticipate change.

This can seem like crystal ball-gazing, a near-impossible task, but considering the current situation and what that might mean for the future can be hugely beneficial because, if there is one thing certain about crisis, it’s that change comes fast. Consider multiple possibilities and make a plan for each so that, no matter which comes to pass, you have a strategy to deal with it.

All Together’s View

It’s all too easy to get pretty gloomy in the face of the economy, and for any business whose product or service is purely discretionary purchase, there’s no doubt tough times are ahead. The same can be said for companies needing to fund raise in the next 18 months; they will face a really tough challenge to survive.

But Phil’s wise words should ring true. Don’t panic. Dig deep into your reservoirs of resilience. Form your own views from the deeply split opinions that frequent the airwaves. Remember, just like the economy, you have been in worse situations. Take the strength from your previous triumphs necessary to make those tough decisions, like extending your cash runway or maximising your cash reserves, for example. Fight and hustle to survive; work your suppliers and customers to extend cash flow cycles. And then innovate to thrive. Be an entrepreneur – the exceptional problem solver – and look for the opportunities (of which there will be plenty) that this downturn offers up.

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We would like to thank Philip for taking the time to share his thoughts and advice with us. We believe his insights will prove extremely useful for our members and we’re so grateful for his generosity.

All Together’s Volunteer Advisors offer their time pro bono to small business leaders for exactly these moments. When times get tough, an independent sounding board can be invaluable. Apply here and we can connect you with one of our advisors: www.alltogether.company/apply

To listen to the full podcast of this conversation, head to Spotify, Apple or any other platform.

All Together’s next Three Things Summit at 4pm on the 24th November will focus entirely on how to survive and then thrive in 2023. Find out more and book your place here.

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