You may recall that sometime ago I wrote an article entitled ‘Back to the Future’ which was not a homage to the film, but a comparison to the economic woes of the 1970s and what is presently happening to the UK economy. This is my follow up to that article.
Currently in the news, unions are balloting members to go on strikes to fight for higher wages, in a backdrop where the Bank of England (“BOE”) is predicting that the current, “9% annual rising inflation, is more likely to be 11% later this year”. Even in the legal profession barristers are walking out of cases in protest for higher wages. So, it is not just the post office and railway workers who are feeling the economic strains but it spans across all sectors of the economy.
The question is now, not when will the UK hit a recession, but how long and deep will it be? We may just need to accept that inflation is not transitory despite the BOE claiming this for a long time. The reason for this is that inflation is not wholly down to our domestic economy, but as a result of imported inflation through rising fuel and supply chains issues which have been exacerbated by the stop start of the Chinese economy (to avoid Covid) and the impact of the war in Ukraine has had on food supplies.
Given the big beast known as inflation has arrived and continues to ravage the UK economy, we need to make sure that what is left is not picked off by the other predator being stagflation, which was also around in the 1970s. Then we had a recession (no-growth) and rapidly rising prices without any increase in productivity. The flip side of a recession is more unemployment, so less wages and consequently less spending and less demand. But, without productivity gains, the issue you have is that the recession may continue longer, whilst productivity only occurs through business investment in people and systems.
Having executed Brexit, the UK must go back to being that flexible open economy, otherwise we will not get workers into the UK to fill some of the less skilled and desirable jobs that are needed to keep the economy moving forward. Workers in the economy produce more than they consume, unlike dependants, who consume more than they produce. There will be less workers with a falling birth rate in England and Wales of 4.1% since 2019. Whilst there will be more dependents as the ‘baby boomers’ generation come up to retirement age and the workers who came into the global economy from places like China, are now also looking to retire.
So the question is will we see a re-shoring of UK businesses to combat supply chain issues and movement of labour into the UK to help soften the recession and increase productivity so easing the demand for higher wages as well as reducing the higher prices of goods and services?
