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Is there a UK recession on the cards?

13 June 2022

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In a nutshell

  • Rising inflation and interest rates appear to be pushing the UK towards recession.
  • The Bank of England face a tough balancing act – prevent inflation from sticking around, whilst avoiding tipping the economy into recession.
  • It’s a hard ask and the Bank themselves forecast a recession before the year is out.
  • It’s important to stay committed to your long-term goals and investment strategy, which is set up to navigate various stages of the economic cycle.

The ‘R’ word. It’s a thought nobody likes the idea of. But as 2022 progresses, whispers of a recession in the UK are becoming louder and more frequent.

Price rises are rife across the country. Household staples like energy, food and fuel have all seen costs soar. Consumers are having to alter their spending habits to cut back on discretionary items, signalling there’s a chance consumer sentiment could turn even more negative in the near future.

In June’s Skipton Insight we take a look at why the UK is in the position it’s in, what might happen going forward and if there’s anything for you to consider as an investor.

How have we got here?

In April UK inflation hit a 40-year high of 9%. It’s expected to rise further over the remainder of the year to average slightly over 10% at its peak in quarter four of this year. Levels have been on the rise since 2021 as the economy began to recover from the pandemic, and it’s only been exacerbated by the outbreak of war in Ukraine.

On top of this, here in the UK there are concerns that energy inflation is beginning to spill into other parts of the economy. For example, annual inflation in restaurants and hotels has reached 8%, compared to 5% just two months ago.

The job market is very strong in the UK – so much so, that for the first time on record there are more vacancies than unemployed people to fill them. This has led to an increase in wages, meaning we’ve started to see the prices of services go up.

A balancing act

So far, the Bank of England have tried to tackle rising inflation by raising interest rates. It’s a tough balancing act they face. They need to prevent inflation from sticking around, whilst also avoiding sending the economy into a recession with the measures they take.

In their May meeting, the Bank raised rates to their highest level in 13 years to 1%. It marked the fourth meeting in a row since December that the Bank has upped rates. And – as things stand – several more rate hikes are expected across the year to deal with soaring inflation.

Markets are pricing in a further five hikes between now and the new year, whereas economists are coming across as more cautious. Some believe the economic outlook will mean the Bank has less headroom for hikes than expected, and it may have little choice but to pause its hiking cycle later in the year.

A soft landing?

In a perfect scenario, the Bank’s efforts to tackle inflation will not come at too great a cost for the economy.

In technical terms, this is known as a ‘soft-landing’. But the world is far from perfect and there’s every chance 2022 will end with a hard fall.

The Bank itself has warned that the UK economy will slide into recession before the year is out. They expect UK GDP growth to fall by almost 1% in the final quarter of the year, and for 2023 they project an overall contraction of 0.25%, rather than the 1.25% growth it predicted in March. How quickly things can change.

Should investors be worried?

It’s understandable to panic at the thought of a recession. It’s something that can have a knock-on effect on our everyday lives. But when it comes to your long-term investments, here’s a few things to think about:

1. Rates are still relatively low

Higher interest rates mean higher borrowing costs for businesses and households. This in turn could depress consumer spending and investment in and from businesses.

Although rates are expected to hit 2.5% early next year, these levels are still relatively low historically, meaning people and businesses can still borrow money at reasonable levels. Not to mention, if inflation is brought back under control the appetite to spend should ramp back up.

2. The stock market is not the economy

It’s worth remembering that the stock market does not always reflect what’s happening in the economy. This is particularly true of the UK stock market, which is very much made up of international companies and dollar earners.

Plus, the UK is a small fish in a big pond. Global markets are more concerned about wider world events right now.

The war in Ukraine, global inflation and pandemic worries in China do signal a slowdown in global growth for the year. But experts still think a global recession in 2022 is unlikely.

3. A recession is nothing new

Recessions have happened before and they’ll happen again. They are a part of the economic cycle.

During the recession in 2008, the MSCI United Kingdom Index fell by 48.32%. There’s no doubt that’s quite a fall and an unnerving number for investors to see in front of them.

On the flip side, in the five years after that between 2009-2014, the index gained 85.66% overall.^

Of course we’re not promising performance like this is definitely going to be replicated in the future, so you shouldn’t use it as a guide to future returns. But we do believe it’s a great example of the benefits that could come with being invested over the long-term – that’s why we always encourage you to stand firm and stay focused on your future goals.

4. You’re in it for the long-term

As a Skipton customer you have a diversified portfolio designed to generate long-term growth. It’s something we covered in more detail in March’s Skipton Insight.

As a short reminder, we aim to provide a balanced exposure to growth, value, and quality investment styles that we believe could navigate the different conditions that can happen over an economic cycle.

At times like these it’s sensible to remind yourself of your long-term goals and investment strategy. It’s a message we’ve repeated time and time again of late. But that’s because it’s so important during such volatile periods.

^Based on the total net cumulative US Dollar performance of the MSCI World Index.

Important information

Economic and market conditions experienced in the past may not be repeated in the future. The opinions and analysis provided are for information only and do not constitute financial advice. In addition, future returns of any funds not invested in UK pounds may also rise and fall as a result of currency movements

Get in touch

As always, if you have any questions about your investments please get in touch with us on

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