The UK did NOT enter recession in 2022
Last week’s news will come as a surprise to many (and a great disappointment to some) as the Bank of England’s forecasts from as recently as November suggested we should now be seven months into a two-year long recession. These predictions are now exposed for what they always were – a harmful nonsense. Bailey was guilty of extrapolating long into the future momentary aberrant market pricing for interest rates and energy, as well as underestimating the strength of the UK jobs market. Those who saw through this at the time have since been rewarded handsomely in UK equity markets. As we argued back in August, 2022 will go down in history as the Bank’s forecasting worst.
“Our only question is how on earth the Bailey bunch will explain away their woeful misjudgements?”
In November, we stated that although we “do not question whether these forecasts will be revised – a euphemism for corrected – upwards… our only question is how on earth the Bailey bunch will explain away their woeful misjudgements?” The answer appears to be “the UK managed to avoid a recession at the back end of last year thanks to a warm winter and lower energy prices.”
This is nonsense on top of nonsense. A recession was never possible in 2022 for a multitude of reasons. When assessing the performance of the UK economy through the year, one should conclude that, thanks to its strong fundamentals, it performed robustly against the backdrop of the multitude of shocks it had to withstand. This would have been the case irrespective of weather (sic) Q4 was “a period of relative warmth”.
For whatever the real economic growth number which is finally settled upon post revisions (of c4%), it will prove real good performance considering the year included the exogenous shock of the war in Ukraine, the endogenous hit from unprecedented turbulence in politics and the insidious force of a BoE doing its damndest to induce not merely a slowdown, but deep and long recession. This is not to mention the impact of considerable strike action, as well as the extra bank holidays due to the QEII Jubilee and State Funeral.
In delivering the growth it did last year, one should conclude the UK economy proved its robustness and promise for the future.
