Instead of talking our economy down, we should commend its resilience over the past year
If the UK economy managed to avoid two successive quarters of GDP decline last year, it will fight as hard this year. It will also win more easily, writes Savvas Savouri
Let’s just take our breath for a moment and recap. Back in the spring of last year, we were warned by the Bank of England – in its best soprano voice – that the recession in 2022 would be so discernible it would not come down to mere rounding errors. And yet here we are, approaching a new spring still not in recession; albeit, so we are warned, a technical recession merely delayed having only just avoided one.
The point I wish to make is the following: those cautioning that we missed recession last year because of a few basis points of meagre growth miss several points. There is the point that they are the very ones who miscalculated their projections, who now demand we trust their revised – read corrected – forecasts of a recession not averted but merely delayed.
They also miss the point that output based GDP is prone to miscalculation. It fails, much like a poorly calibrated ‘measurement’ instrument which systematically underreports. Within a short period of time, the better – albeit still far from precise income and expenditure-based measures for GDP – will have erased the recent flash output-reliant data telling us we came ever so close to recession. The traditional retail sales data so important for nowcasting consumer spending within GDP under-report all manner of our fast-moving behavioural changes.
In terms of the service-side of the UK economy, the nature of the GDP output-based measurement also fails; one can capture the income and expenditure of professional services, but output? Really, the output across law, media, accounting, and technology? After all, these do not produce widgets but intangibles, which allow their ‘producers’ to earn and spend well.
What then of 2023? Well, if with all that was thrown at it through the course of last year, the UK economy managed to avoid two successive quarters of GDP decline, it will most certainly fight just as hard, not succumb, in 2023. Fight as hard and win even more easily.
As to why, the answer is simple. The jobs market is sufficiently strong it will not buckle but continue to hire and pay better. Indeed, as wage inflation moves higher it will overtake cost-of-living growth which is easing ever lower, and has easily halved by year-end.
As for housing, here too the worst pressures are behind us. True, the base rate in 2023 will be higher than last year. No less true is that the flash spike in mortgage rates of September and October has passed and done so for good. For their part, UK banks and insurers and indeed the many households with savings, can hardly be unwelcoming of a base rate of around 4 per cent rather than the near zero they had to endure for far too long. This of course raises the thorny issue of competency in economic management.
If the UK economy got through last year in the incapable hands of the Bank of England, it can manage to do so again. Gilt market stability has been restored. As for the pound, where it lies is economically perfectly comfortable.
Rather than bemoan how ‘rubbish’ the UK economy has been, maybe the far more reasonable thing to conclude is that it has proven robust. After all, I cannot imagine what more could have been done to challenge it last year beyond, that is, us all throwing our kitchen sinks at it.