The great recession escape

The good news is that we're going to avoid recession. The bad news is that it won't be by much...

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Last Updated: 31 Aug 2010

The British economy is heading for a rough 2008/9, with falling profits, rising prices, bigger job cuts and smaller wage increases, according to a new survey by consultancy Hay Group and the Centre for Economic and Business Research. The study, which asked senior business figures to give their predictions for the year ahead, pointed to another 18 months of slowing growth before the economy starts to pick up – although the bigwigs reckon we’ll avoid recession by the skin of our teeth.

The study suggested that corporate profits could drop by an average of 1.3% in the current financial year – which will wipe almost £1bn off the bottom line of UK plc. Bigger companies are expected to be hardest hit, with banks (not surprisingly) likely to suffer the most – they’re expecting profits to be down nearly 8%. So it’s no surprise that the rate of wage increase will slow across the board – just as price inflation reaches its highest level for years. Typical.

Job cuts are also likely to rise, something that we’re already starting to see at some of the big banks hit hardest by the credit crunch. 350,000 could go this year (almost a third of which will be in the financial services sector), equivalent to a 1.1% average reduction in headcount across the country. And just to make those poor bankers feel even sorrier for themselves, it could be several years before we return to pre-crunch staffing levels.

On the other hand, we shouldn’t get too carried away. The study predicted that profits would jump nearly 3% in the following year – and its authors warned that companies must avoid incapacitating themselves before the start of the next economic cycle. ‘Organisations should be wary of cutting headcount so deeply in the short term that they will not be able to take advantage of the upturn when it happens,’ said Hay’s Russell Hobby.

And although he accepts that we’re in ‘the most challenging economic environment for more than a decade’, the CEBR’s managing economist John Ward also reckons that we’re in a much better state than we were last time around. ‘With interest rates, inflation and government finances in better health than before the last sustained downturn, we expect that the UK economy will escape recession,’ he said, trying to sound cheery. So really, we’ve got a lot to be grateful for - even if it might not feel like it in the coming months...

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