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Is the UK headed for recession by 2022?

Is the UK headed for recession by 2022?

Since the nationwide easing and eventual ending of lockdown and Covid restrictions that the UK faced from the beginning of 2020, the British economy has experienced rapid economic growth.

Initial predictions of a recovery boom were made by economists towards the end of the first financial quarter of 2021, and subsequently, the UK economy has grown a huge 4.8% in the second quarter. 

However, multiple forecasts suggest that growth could slow down significantly moving into the third quarter of 2021 and potentially into negative growth by early 2022; two consecutive quarters of which is cause for recession.

 

What is the reason behind these suggestions?

With multiple sources predicting the growth of the UK economy slowing down in the coming quarters, decreasing from 4.8% to 3.5% by the third quarter and all the way down to 1.1% by the fourth quarter according to BCC (British Chambers of Commerce), the question arises as to why?

The initial loosening of restrictions for businesses such as pubs, gyms and restaurants provided a much-needed boost to national GDP; with the Office for National Statistics indicating a 2% jump in April alone. However, the following month of May proved to be the start of the decline we find ourselves travelling down as growth slowed to a mere 0.8%. Despite the previous 6 months all having positive growth percentages, the latest figures from the Office of National Statistics showed a tiny 0.1% increase in July, with a trend line headed for the negative.

A likely cause for this is the rapid increase in Covid cases following the near-complete removal of COVID-19 restrictions. The jump in cases caused a surge of British workers to be forced to isolate in line with the NHS Track and Trace system’s guidelines, causing a knock-on effect for now short-staffed businesses struggling to maintain levels of productivity. As the furlough scheme slows to a halt by the 30th of September, businesses are under pressure to pay wages to staff who test positive and must take time off work.

Combine this with inflation rates hitting 3.2% and heading to 4.5% by Christmas, and both employers and workers have felt the pressure of a rising cost of living. As inflation rates rise, so too does the price of the food thinly lining the shelves of supermarkets due to shortages of lorry drivers. With Covid cases expected to climb higher in the lead up to winter, for some there isn’t much optimism of a quick turnaround on this slippery slope towards recession.

 

Is there any way to turn the ship around?

The Chancellor of the Exchequer Rishi Sunak is adamant that the UK economy is still on path for recovery, and that the government has ensured steps that could make that a reality. Their primary target has been funding of the NHS, granting a record £36 billion to the healthcare system and to social care. This may have a positive effect on decreasing the number of hospitalisations caused by Covid, and therefore reducing impacts on businesses and productivity.

Additionally, the government has kept interest rates at their record low of 0.1% in order to encourage consumption and the taking out of personal and business loans to boost the economy.

 

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