- Academic explains how world economy suffered ‘double whammy’ of Covid pandemic and invasion of Ukraine
- The UK’s economy was already weakened by the global financial crisis and austerity
- Consumers and businesses face difficult year ahead, but inflation forecast to start falling in 2023
A recession is “pretty imminent” for the UK economy, resulting in a “painful” year ahead for the country, but there is light at the end of the tunnel for consumers.
That is the view of economist Dr Dean Garratt from Aston University who said the new Liz Truss government got its recent mini-budget wrong and “spooked” financial markets as a result.
Dr Garratt, a senior teaching fellow at Aston Business School, was giving his views in the latest episode of the ‘Aston means business' podcast, presented by journalist Steve Dyson.
He said the world’s economic slowdown had been caused by a “double whammy”, starting with the Covid pandemic in 2020.
But as lockdowns eased, economies across the world opened up at different speeds which created a “demand-supply imbalance”, with shortages of key goods and components.
Dr Garratt, who has previously worked as an assistant economist for HM Treasury and later at what is now the UK Finance trade body, said an “inflationary spike” was already emerging in 2021, but the subsequent war in Ukraine had fuelled it further.
He said Britain was in an “extraordinarily turbulent period” which started with the global financial crisis in the late 2000s, worsened by the austerity programme.
“The UK is not quite technically in recession, but it’s just a matter of time,” Dean forecast. In fact, it is “pretty imminent”, he added.
And bodies such as the International Monetary Fund were suggesting the UK was likely to experience one of the more “substantive slowdowns” among major developed economies.
While Britain, with possibly the USA, were most severely affected by the global financial crisis, the UK then went through a “decade of austerity”.
Dr Garratt said: “The government took the decision to think carefully about spending, and trying to keep spending under control, which has a negative effect on the overall growth of the economy.”
And those “shocks” were then followed by Brexit, with Dr Garratt saying the view of most economists was that the UK had “made it more difficult, more costly, to deal with our nearest trading partners”.
“So, you can add Brexit to that impediment to economic growth,” he added.
All told, it meant an unfortunate “melting pot” of things all coming together for the UK economy. And Dr Garratt said the recent mini-budget had not helped matters.
There was a “general agreement” that more could be done with the income tax system to encourage those at the lower end of the wage spectrum.
But on the mini-budget, he said: “Was it the right thing to do to target it at the top end of the income bracket? You will get a lot of economists a bit puzzled by that. Secondly, if you are going to announce tax cuts you better have backed it up with your auditor, the Office for Budget Responsibility in the case of the government, because markets do not like being spooked or given partial information.”
Dr Garratt said it was also “peculiar” to introduce “unfunded tax cuts” when you are trying to get inflation under control.
But he predicted that there is good news on the horizon, with inflation forecast to peak next summer.
“It isn’t an immediate utopia I am painting here, this will be a very difficult period, but I can see the rate of inflation falling back quite sharply in the second half of next year and, with it, interest rates falling. That isn’t to suggest it’s not going to be painful and difficult, but I am optimistic.”
Dr Garratt said economics touched everyone, whether consumers or businesses, and what it can do is help give information to individuals as to what they can expect, and what they should do to get by or even survive.
Episode 6 in series 5 of ‘Aston means business’ podcast can be found here.
- Notes to Editors
About Aston University
Founded in 1895 and a university since 1966, Aston is a long established university led by its three main beneficiary groups – students, business and the professions, and the West Midlands region and wider society. Located in Birmingham at the heart of a vibrant city, the campus houses all the University’s academic, social and accommodation facilities for our students. Professor Aleks Subic is the Vice-Chancellor & Chief Executive.
Aston University is ranked 22 in the Guardian University Guide, based on measures including entry standards, student satisfaction, research quality and graduate prospects. The Aston Business School MBA programme was ranked in the top 100 in the world in the Economist MBA 2021 ranking.
For media inquiries in relation to this release, contact Sam Cook, Press and Communications Manager, on (+44)7446 910063 or email: s.cook2@aston.ac.uk
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