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The odds of recession have been rising for months. Last week will be remembered as the week in which they lurched sharply higher. With US inflation hitting a 40-year peak of 8.6% and euro area and UK inflation at similar or higher levels, markets fear that central banks will have to push economies into recession to tame inflation.
For the last 15 years central banking has been about supporting growth and heading off deflation. Today they face the opposite problem – too much growth and rising inflation. The Federal Reserve broke the last great surge of inflation, in the early 1980s, by raising interest rates to 19%, in the process inducing a recession. Today’s situation is different, not least because inflation rates are lower and, unlike the 1970s, inflation has been well behaved for years. But there are enough similarities – soaring energy prices, tight labour markets and industrial unrest – for the 1980s’ experience to be relevant and unsettling today.
A year is a long time in economics. Last summer there was much talk of how the end of the pandemic could usher in a period of rapid, technology-driven growth, much as happened in the 1920s. Such talk has faded in the face of soaring inflation and faltering growth. Instead of roaring growth in the 2020s, global activity is spluttering, with the OECD and the World Bank warning last week of the growing risks of a recession.
For the first time in more than 12 years the Monday Briefing is appearing early, on a Thursday. This break with precedent has been triggered by a still greater landmark, the 70th anniversary of the Queen’s accession to the throne. To mark the occasion, and to provide a possible diversion over the Bank Holiday break, the Economics team offers a Platinum Jubilee quiz. There are 14 questions, one to mark each prime minister who has served during the Queen’s long reign. For the purpose of simplicity most numbers are rounded to the nearest whole number. The answers along with an explanation of the factors at work follow question 14.
The hope for the global economy is that inflation will fall away sharply in 2023. That is seen as the mostly likely outcome by the majority of economic forecasters and central banks – even if they are less confident about it now than they were a year ago. So why, despite shockingly high inflation today, do forecasters expect price pressures and inflation to ease next year?
With UK inflation at the highest level in 40 years and set to hit the 10% mark later this year, households are seeing an acute squeeze on spending power. On Friday, the polling group GfK reported that their measure of UK consumer confidence had dropped to the lowest level since the series started in 1974.
Energy costs, supply disruptions and the war in Ukraine are weighing on global growth. Among major industrial nations Germany has been hardest hit. Its manufacturing and export-focussed economy has generated ever-larger trade surpluses for each of the last 20 years. Now this model is being tested by spiralling commodity prices and slowing global demand. Forecasts for German GDP growth this year have fallen faster in the last six months than forecasts for activity in the rest of the EU and North America.
Climate change is a vast and complex subject. This week’s Briefing offers seven numbers that illustrate some of the challenges.
When the latest UK official data are published in two weeks’ time it is quite likely that they will show that inflation hit 9.0% in April, the highest level in almost 40 years. The speed and force of the upturn in inflation has been remarkable; just over a year ago UK inflation was running at under 1.0%.
Join me, and my guest, Deloitte CEO Richard Houston, for our spring economic webinar tomorrow, Tuesday, 26 April, at 13:00 BST where we will assess the economic outlook and discuss how business can navigate the challenges ahead.
Join me, and my guest, Deloitte CEO Richard Houston, for our spring economic update webinar on Tuesday, 26 April, at 13:00 BST where we will assess the economic outlook and discuss how business can navigate the challenges ahead.
Wild swings in supply and demand during the pandemic put global supply chains under enormous pressure. By the end of last year it looked as if supply chain disruptions would start to ease in 2022. Slowing pent-up demand and increasing production pointed to a gradual return to something closer to normal. Such hopes have been dashed in the last two months by rising COVID cases in China and Russia’s invasion of Ukraine.