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The Analysis Forums


Are we heading for a recession?


Watching the news, the talk is very much about the impending recession


Laurie Beagle Managing director, Forums International lauriebeagle@forumsinternational.co.uk


What causes a Recession? This is when there is negative growth in the economy for two consecutive quarters. However, according to the World Bank, one may be coming in 2022. They warned that most countries are headed for a recession, with a possible return to stagfl ation. The economy will shrink in the second half of


the year, according to the National Institute of Economic and Social Research (NIESR). They predict that infl ation will soar above 8%, and unemployment will increase to above 5% as the country is part of an international slowdown. Its forecasters also expect Russia’s war with Ukraine to slam the brakes on global growth, costing the world economy $1.5tn of output. Britain’s GDP will fall by 0.2% in the three months to September and another 0.4pc in the fi nal quarter of 2022 as ‘stagfl ation’ threatens, before returning to years of mediocre growth. Living standards are expected to slump, disposable


with real household incomes


to drop 2.4% this year. An extra 250,000 households will fall into destitution, taking the total to around one million. This means that for at least six month’s people’s wages and what they can buy decreases, so they become poorer, and services less aff ordable. Many economists are warning about a reces-


sion, but it’s not a certainty, the UK’s economy, for now, is growing. At the Chancellor’s spring statement in March the Offi ce for Budget Responsibility (OBR)


predicted the UK


economy would grow by 3.8% this year. This estimate is lower than the 6pc predicted last October and matches the International Monetary Fund’s prediction of 3.7% growth. What has heightened fears of a recession is


a sharp rise in infl ation, which could put prices up by 10% by the end of this year. Infl ation is largely seen as a negative indication however some infl ation is necessary and does mean an economy is growing. However, when infl ation does rise sharply it then becomes a problem. Therefore, most recessions have been caused by economic shocks, subsequently pushing up


June 2022 www.CCRMagazine.com


infl ation and prices, such as Covid-19, wars, and the collapse of the banks. The Bank of England has raised interest


rates since December to try to counter infl ation. So, what is the outlook for businesses and what can the credit community do to help? With interest


rates and costs rising


especially some customers are looking to take longer to pay as they themselves are being paid later.


own. Making sure that risk is managed and keeping the cash fl owing as


Credit management will hopefully come into its


starting to rise so another challenge to be aware of


Also, we do keep talking about the increase in insolvencies, they are


businesses will start to look closely at their fi nances and overheads. We know that moving away from home working and back to the offi ce is the current trend, but will that continue? Is it cheaper to have home workers than to keep offi ces open? Credit management will hopefully come into its own. Making sure that risk is managed and keeping the cash fl owing as especially some customers are looking to take longer to pay as they themselves are being paid later. Also, we do keep talking about the increase in insolvencies, they are starting to rise so another challenge to be aware of. Can the Government stop a recession?


Central banks, like the Bank of England can increase interest rates to dampen down infl ation so prices do not rise too steeply. But governments cannot act to stop shocks,


for


example stock market falls or banks collapsing. There are arguments that recessions are part


and parcel of the economic cycle. That they can lead to a clearing out, or what economists call a reset or ‘correction’. It is also an inevitable payback time for


the economic


damage caused by Covid measures such as lockdowns and the very large government spending never


seen before in peacetime.


There is no such thing as a free lunch and now we are going to have to pay for it. One business owner said: “Having just


survived the worst two business years in the modern age we are just going to concentrate on running the business as best we can and see if we make can it through.” Whatever happens with the economy, you


need to focus on what you can actually do and do your best. CCR


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