Britain is facing recession in everything but its name as living expenses skyrocket

History books may not judge it that way, but Britain was in recession in 2022, except for its name.

Statistical quirks, including the presence of additional banking leave in the Queen’s Diamond Jubilee, mean the country could avoid shrinking for the second straight quarter, but almost all other economic indicators shout recession. I’m out.

As a result, the post-pandemic UK will fall below all other major economies next year, causing serious headaches for both Bank of England Governor Andrew Bailey and Boris Johnson.

Consumer confidence is already below the levels seen in recessions, at least since the 1970s, even before the effects of the fastest inflation in decades are fully manifested. Until then, households faced the greatest decline in living standards since the 1950s.

Even the housing market clearly shows the pillars of people’s sense of wealth and strength in recent years, showing signs of chilling, with demand for mortgages declining as interest rates rise.

With inflation peaking in double digits in October, five times the BOE’s 2% target, Bailey and his colleagues say they will continue to raise interest rates, even if it means worsening living costs in the short term. There are few options.

For Johnson, who was about to be expelled by the Conservatives in a distrust resolution on Monday, saving the economy is essential for him to survive longer. It was no coincidence that his first speech since the ballot emphasized the need for tax cuts to tackle the cost of living crisis and raised lower tariffs.

This week’s data is expected to reveal signs of increasing pressure on households and businesses.

According to a median forecast from the Bloomberg survey, economic growth in April was only 0.1% and growth in the last two months was zero. Retail sales are believed to have fallen in May, and economists expect the labor market to lose momentum and employers to add more than half of their April salary.

The Bank of England is expected to reach its highest interest rate since 2009 with an unprecedented five consecutive rate hikes, sandwiched between reports.

Money markets are betting on interest rates above 3% next year, marking the fastest tightening cycle in history.

The economic fragility that results from the pandemic and Britain’s departure from the EU means that Britain is facing a long-term downturn, suffering from continued weak productivity growth rather than a short-term recession. To do.

In May, the BOE’s production fell sharply by about 1% in the final quarter of this year, then shrank slightly in 2023 and stagnated in 2024. The new £ 15 billion ($ 18.5 billion) support package Rishi Sunak announced by the Prime Minister then offers only temporary relief.

The OECD said last week that there would be no growth next year in the UK. This is the worst outlook among the major countries. Households are in debt “to keep up with rising living costs.” Companies reduce their investment in the face of rising borrowing costs.

All of this will be one of the toughest times for the UK economy in decades. Indeed, outside the financial crisis and the great shock of Covid, only the resilient labor market is comforting governments and consumers. Still, the Bank of England expects about 500,000 job seekers to be unemployed within the next two years.

James Smith, ING’s economist, said: “Looking back at history, a serious recession is indicated by whether the unemployment rate rises significantly.”

For the average Briton, fluctuations in economic statistics, or some basis points of growth here and there, are of little concern in the coming months.

A plunge in household living standards, a collapse of self-confidence, and little or no growth mean that whatever official data shows, it feels like a recession to some people. And while poverty activists welcome the support provided by snacks as they are, they are doing nothing to address the underlying problems facing low-income earners.

“Even before this period of high inflation, many were in debt and many were experiencing poverty, which attacked those long-term problems,” said Rebecca McDonald, senior economist at Joseph. I don’t even start. ” The Rowntree Foundation told lawmakers last week.

© 2022 Bloomberg LP