PracticePeople In PracticeUK recession

UK recession

Talking ourselves into trouble

In The Big Question (20 August) you reported that two-thirds of finance directors believe the UK is heading for a recession, while only around one-fifth believe we are not.

A recession is defined as two successive quarters of falling gross domestic product. Quarterly growth for each of the quarters to 31 March 1998 and to 30 June 2998 was 0.5%.

Our economic model, based on but not subservient to the Treasury?s model, suggests that in the ensuing quarters the quarterly growth rate may slow. Our model suggests quarterly growth will not be negative in any one quarter. On this basis, we believe an outright recession is very unlikely.

Turning to unemployment, the ?trend? growth rate of the UK economy is around 0.5% per quarter; this is the rate at which the economy grows as a result of increases in productivity, improvements in technology, and so on. When growth is below this figure, unemployment will tend to rise; if it is above, then unemployment will tend to fall. Our economic model forecasts quarterly growth in the next few quarters will be somewhere between zero and 0.5%; we therefore expect an increase in unemployment of at least 200,000 in the next year or so as a result of slowing economic growth. But rising unemployment will not mean we will be in recession; it will merely mean the economy is not growing fast enough to prevent unemployment rising.

We can, in fact, talk ourselves into a recession. The more there is talk of a recession, the more confidence is affected, and the more likely one becomes. Constant reference to a recession also undermines confidence in the organisations which seek to control the economy: the Bank of England Monetary Policy Committee, and the Treasury. This undermining of confidence should not be encouraged. Careless talk costs economic growth.

I am not accustomed to putting an optimistic spin on events. Taking Stock once described me as the Cassandra of Chantrey VelIacott. Readers may therefore be reassured that, while I expect unemployment to increase, I believe an outright recession is very unlikely.

Maurice Fitzpatrick is head of economics, Chantrey Vellacott

Related Articles

Is inefficiency stealing your time and money?

Accounting Firms Is inefficiency stealing your time and money?

6m Emma Smith, Managing Editor
CIMA elects new president

Institutes CIMA elects new president

6m Emma Smith, Managing Editor
Transparent currency trade: How to achieve costs visibility

Governance Transparent currency trade: How to achieve costs visibility

6m Emma Smith, Managing Editor
Introduction to KPMG UK’s new leadership team

Accounting Firms Introduction to KPMG UK’s new leadership team

6m Emma Smith, Managing Editor
EY appoints head of UK Infrastructure Asset Intelligence practice

Accounting Firms EY appoints head of UK Infrastructure Asset Intelligence practice

8m Emma Smith, Managing Editor
FRP Advisory expands operation with new office, partner appointments

Accounting Firms FRP Advisory expands operation with new office, partner appointments

10m Emma Smith, Managing Editor
Magma Group announces merger, partner promotions

Accounting Firms Magma Group announces merger, partner promotions

10m Emma Smith, Managing Editor
MHA MacIntyre Hudson advises on management buy-out

Accounting Firms MHA MacIntyre Hudson advises on management buy-out

10m Emma Smith, Managing Editor