Another year of stagnation beckons. Well into 2024, we’ll see the UK economy lurch from side to side, like a zombie, unable to move forward. While the government wrestled with the fallout from last year’s Liz Truss mini-budget and the Bank of England killed off what enthusiasm was left by raising interest rates, it was inevitable a sense of stultifying gloom would dominate this year. But now it looks like next year will be much the same.
Predictions from some independent economists and business groups even show that a recession in which the economy goes backwards for much of 2024 is more likely.
The latest business survey from S&P Global, its purchasing managers index (PMI), shows private sector business activity falling during September at the fastest pace since 2009, excluding the pandemic panic of April 2020.
Another S&P Global survey, this time of employment trends, showed the number of employers actively hiring sank to its lowest since 2009, again excepting the pandemic. The report, conducted by KPMG and the Recruitment and Employment Confederation (REC), found the permanent staff placements index – a measure of hiring rates – down at 38.9 in August, from 42.4 in July. A number below 50 indicates contraction. This index has sunk from an average of 54.2 in the second half of the 2010s; it was at 55.3 as recently as 2022. When employers cut back on recruitment to this extent, it’s usually a sign that a recession is on its way.
On the other side of the fence are the Bank of England, the International Monetary Fund (IMF) and the Organisation of Economic Cooperation and Development (OECD), which believe the UK will see modest growth in 2024, even with high interest rates and a slowing global economic outlook.
The OECD was the most recent of these international bodies to provide a forecast. It said earlier this month that after growing at a rate of 0.3% this year, the UK economy would expand by 0.8% next year. The IMF bettered that with a full 1%.
That’s still barely more than a crawl, but it’s not a recession, and it’s founded on evidence that contradicts the doom-laden business managers who told the S&P Global survey they were cutting production, cancelling orders and generally hunkering down.
Samuel Tombs, chief economist at consultancy Pantheon Macroeconomics, says that with “wages still rising and consumers’ confidence improving materially over recent months”, the news from purchasing managers that economic activity is declining quickly should be taken with a pinch of salt.
He adds: “The PMI has a track record of signalling downturns that have not materialised.”
There is also a concern that the KPMG and REC hiring figures are missing something vital by failing to register the recent trend for businesses to hoard labour, “for fear they may not easily be able to replace them further ahead,” Tombs says.
The practice of labour hoarding tells us that most businesses believe they can get through the next year or two without redundancies. Wages are also increasing, which supports the thesis that a recession, if it happens, will be as modest as its possible for a recession to be.
The picture is also complicated by regions that are bucking the downward trend. Northern Ireland, which is usually a drain on the UK economy, is faring well now it has exclusive access to both the UK and EU single markets.
There are other factors telling us that, for the majority, 2024 won’t be too bad. The recent retail sales figures were buoyant, and plenty of companies are reporting a steady stream of customers coming through their doors.
Next has joined Marks & Spencer as a bellwether of the high street and, like M&S, reported strong results for this year.
Next said costs were falling and that this would translate into cheaper clothes next year. That’s a bit of relief for the average family, which has seen disposable income drop over the past three years as a mix of inflation, tax rises and insufficient wage increases took their toll.
Food price inflation is coming down and could be at zero in the new year. Labour hoarding means most jobs are safe and workers can at least budget with some certainty.
It isn’t much, and speaks to an economy stuck in neutral without an easy way to move through the gears. Maybe the IMF/OECD forecasts will turn out to be accurate, but zero growth is a better bet.
For the government, that will mean an eighth year of stagnation, a continuation of the zombification that began with the Brexit vote, when business investment collapsed and returned only in short, unsustained bursts.
As an election looms, there will be little positive to say other than that a bad recession was avoided.
