Relax, the UK (probably) isn’t heading for recession

Immediate fears of a recession in the UK economy were eased last week with the latest Office for National Statistics (ONS) estimate of monthly GDP. The economy had shrunk in April, but growth resumed in May. This has not prevented widespread conjecture that a recession is imminent. The Resolution Foundation claimed last weekend that the risk of a recession is at its highest since 2007, the year immediately before the financial crisis. The most serious recessions are caused by the debts of the private sector – households and firms – growing too big. Repayments become challenging, and fears grow among lenders that the debt will not be repaid.   At the end of 2007, for example, household debt in the UK was 93 per cent of GDP. Two decades previously, in 1987, the ratio of debt to GDP was only 49 per cent. This crept up to 57 per cent at the end of 1997. But the opening years of the twenty-first century saw a surge in debt levels. The same is true of corporate debt. This was 95 per cent of GDP at the end of 2007, having been only 39 per cent 20 years previously. Debt remained high at the end of 2018, the latest date for which the Bank for International Settlements data is available. Household debt was 87 per cent of GDP and corporate debt 84 per cent.   But the ratios are lower than they were at the start of the financial crisis of the late 2000s. The trend over the past five years is broadly flat. There is no sign of the rapid accumulation of debt which characterised the 2000s. With my UCL colleague Rickard Nyman, I have been using artificial intelligence techniques to measure daily levels of sentiment on social media in the Greater London area since June 2016, and the general level of sentiment among individuals shows no sign of collapse either.  Official forecasts insisted that a sharp recession would take place in the UK in the second half of 2016 if the electorate voted to leave the EU. But the social media based sentiment measure showed no signs at all of collapse at the time.  We could see in real time that it became more positive after the referendum, even in the Remain stronghold of London. And, of course, there was no recession. Over the past three months, sentiment shows no change on its level in the same period in 2018.  Admittedly, the latter was definitely lower than in 2017, a slowdown which ONS data, appearing several months later, confirmed. None of this means that the economy is roaring away. Growth has been modest, and while debt levels are being controlled, their height from a historical perspective means that they act as a constraint on spending plans. Ironically, perhaps the biggest threat of a recession comes the EU, and specifically from Germany, the Remainers’ paradise. It is much more dependent on manufacturing than the UK, and these exports have been hit by US-China trade tensions. The warnings from economists in Germany are not about a mere recession, but of a potentially severe one.
Paul Ormerod
As published in City AM Wednesday 17th July 2019
Image: Shopping Max Pixel licensed under CC0 1.0

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ALEX O’BYRNE

Associate

e: aobyrne@volterra.co.uk
t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.

ELLIE EVANS

Senior Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.