UK Global and Economies - What can we expect?

PAUL WAITE - FCA FCCA - CHIEF EXECUTIVE ASPEN WAITE GROUP UK Global economies. What can we expect?

We live in unparalleled times. The global economy still struggles with the legacy of COVID-19, and we are vulnerable to the possibility of another lockdown. Have we learned from our pandemic experiences? Somehow, I doubt it.

The Chinese have adopted a zero risk COVID-19 policy and, as the country is responsible for 19% of global activity, the current shutdown is biting all over the world.

Just as the world was coming to terms with COVID-19, Russia invaded Ukraine.

The negative impact of this cannot be overestimated. Continental Europe is experiencing inflationary pressure, mostly from the difficulties in obtaining energy supply and Ukraine was one of the breadbaskets of the world.

The grain cannot get out of Odessa, and it is the poorer countries that are disproportionately suffering.

The true global impact of the war is immense, and many things will never be the same again. Russia is likely to be a pariah state for years to come.

The UK Government had a relatively enlightened attitude to COVID-19 compared to many countries but came out of the pandemic in a worst state than any other major economy.

There was a double whammy for the UK with Brexit also to contend with.

The Guardian published a paper recently that predicted that the UK economy was already 5% lower because of Brexit.

The UK has been referred to as “the sick man of

Europe.”

The UK Government offered several supporting measures in the pandemic, notably the Furlough Scheme and Government Assisted Loans. The latter arguably too easy to access, leading to hundreds of millions of pounds of loans in default.

Aspen Waite availed itself of the VAT Deferment Scheme and the Bounce Back Loans but there is a sting in the tail; the VAT had to be repaid quickly and the loan repayments kicked in at the end of 2021. Our business is highly dependent on our network and the collaborative work we undertake. The pandemic closed our network down and it was only in November 2021 that we saw the light switched back on.

Business confidence has been battered and many owners fear for the future. The UK Government in its infinite wisdom chose to implement a hike in National Insurance, affecting employees and employers alike. This is a short sighted and counterproductive measure.

But there is worse to come. Rishi Sunak is determined to stick to the hike in corporation tax up to 25% from next year.

This, along with the abandonment of the business owner class when Entrepreneurs Relief was reduced from £10m to £1m, is the tax measure that has most upset me in my lifetime.

Please do read my article called

“The betrayal of the business class by the Conservative Government”.

Despite the contraction in the UK economy in the last couple of months, the year is still likely to see economic growth more than 3%. My own view regarding the next 2 to 3 years is one of extremely low growth and worse given the possibility of variable factors further negatively impacting.

Inflation could well reach 10% and energy costs are soaring. The £2 a litre petrol at the petrol pumps draws ever closer.

The labour market is still on the employees’ side but is tightening and, of course, real incomes are falling.

The difference between the haves and have nots across the world is growing with this position being particularly serious in the USA where the word “socialism” is considered dangerous so hundreds of thousands of citizens are abandoned to towns of the homeless. No ability to afford healthcare and no chance to live the ‘American Dream’.

The USA economy was overheating mainly off the back of significant quantitative easing, a measure I am highly against. The Federal Reserve is now responding to this by raising interest rates fast. Interest rates are likely to rise to at least 2% maybe 3%. Inflation will remain historically high to until 2024 and I then think it is realistic to see it return to near 2%, assuming, of course, no further pandemics or wars.

The UK Government, in my opinion, has no credible economic policy and I can see many businesses failing in the months to come.

The Recovery Loan Scheme ended on 30th June, and it is hoped that there will be a successor scheme.

If your business needs to raise debt or equity finance and you would like help and guidance, please do not hesitate to contact me.

We collaborate with some fantastic people and if it can be done, we will get it done.

I am a great believer in planning and forecasting and this is even more important in the tough times. Again, we can help you with this and help you with all aspects of the advisory process.

Immigration is a serious issue in the UK and is helping to fuel a housing shortage.

We will probably see a contraction in property prices in the medium term.

As an economist, the current period is the most interesting of my adult life.

In summary:-

• Expect inflation to continue at near 10% for at least 18months.

• Interest rates to rise to over 2%.

• Despite the “political decision” to raise tax rates, tax yields will fall.

• The UK needs to adapt quickly post-Brexit.

I fear we will see low growth for the foreseeable future.

The Global economy desperately needs the Russo-Ukrainian war to end and China to end its close down.

Over the medium term, the world will get there, but hang on for the ride.

Paul Waite

BSc (Hons) Economics