By Economic Times Editor: Looking at the headlines in the print media recently and you’d be forgiven for thinking the country was in an unstoppable downward economic spiral. Perhaps it is.

For instance, retail sales fell sharply in August and continue to do so as UK consumers struggle with soaring prices and high energy costs. This has actually been happening since mid summer. The reality is that retail sales are now shrinking. It is speeding up the approach of a recession and is piling even more pressure on a dejected pound.

One very expected outcome is that the UK jobs market is now on course to lose some steam, which is driven by firms cutting levels of staff in response to their own increasing costs and weaker consumer spending, a new survey revealed.

Even with Prime Minister Liz Truss’s decision to freeze household energy bills at (an average) £2,500 for two years at a cost of £150bn – inflation still breached double digits, albeit it will likely reduce the severity of the depth of the coming recession. Real wages have not kept up.

It doesn’t help that the latest data from HMRC has seen Brexit deliver a devastating blow to business. The number of UK businesses exporting goods to the EU fell 33 per cent to 18,357 in 2021, from 27,321 in 2020. Exactly one-third of businesses exporting to the EU have given up. This has caused the UK’s trade performance this year to fall to its worst level since records began in 1955. And the cause, according to analysts  – is all down to Brexit.

To top this – Sterling fell in value against the USD to its lowest level since 1985, bounced and fell back again – after yet another round of weaker than expected data on UK retail sales, which amplified concerns that the country is headed for a prolonged recession.

I reported six months ago that by the start of the last quarter, Britain would be in recession, irrespective of whether it was ‘technical’ or not. Olivia Cross, economist at Capital Economics, said the figures suggest “that the downward momentum is gathering speed” and supported her view that “the economy is already in recession”. 

There are multiple reasons why Britain is doing worse than its peers. The recent falls of educational standards (in comparison to peer nations) is up there. Privatisation of critical infrastructure has been a disaster. Water is a prime example – so is energy. The former is polluting just about everything to such an extent that tourism is being affected. This is hardly surprising with headlines from across the Atlantic such as – “Sewage-covered beaches risk turning England into the ‘dirty man of Europe‘”

Just a few weeks ago, it was reported that the very lovely Lake Windemere had become so polluted the water was as toxic as Cobra venom and posed a serious health risk.

Regarding energy, the UK was paying the second highest amount for its electricity supply in the whole of Europe, topped only by the Czech Republic just two months ago. Since then, wholesale energy prices have fallen back somewhat – according to the Household Energy Price Index (HEPI). And yet, prices have not fallen for the consumer. The system is broken – obviously.

Then there’s the growing public health crisis. Just prior to the pandemic, UK healthcare was already on the slide. Generally recognised by most standards as being inside the top three best-performing systems in the world in 2010, it has now moved ten places down the ranks to 13th. This is a rapid decline by any standards. Poor handling of the pandemic and underfunding in the NHS has left hundreds of thousands of workers unable to work.

 

Hidden Crisis

Then there’s the hidden crisis. Last year the top-earning 3 per cent of UK households each took home about £84,000 after tax. This puts Britain’s highest earners comfortably among the global elite.

But as the Financial Times has recently reported on the same subject – While the top earners rank fifth, the average household ranks 12th and the poorest 5 per cent rank 15th. Far from simply losing touch with their western European peers, last year the lowest-earning bracket of British households had a standard of living that was 20 per cent weaker than their counterparts in Slovenia.

Fifteen years ago, the average UK household was 8 per cent worse off than its peers in north-western Europe. But now things are so much worse as that income deficit has since rocketed to a record 20 per cent. This means that on the current trajectory, the average Slovenian household will be better off than its British counterpart by 2024. Not only that, but the average Polish family will move ahead before the end of the decade.

Think about that for a moment. Low paid British workers could be going to Slovenia or Poland to better their lives than staying in the UK.

Britain also did much worse than the Americans. Five years of pre-pandemic economic growth in US saw living standards basically lift all boats. Again, the data shows that this trend was totally absent in the UK.

If this trajectory continues, the growing middle classes will continue to be eviscerated, the poor will get poorer – but there will be many more of them – and the rich will grow richer. This is a toxic cocktail that always ends badly.

 

Governance

Of course, all of these poor outcomes (pre or post-pandemic) are the result of nothing other than poor economic management. The Tory party has fully demonstrated in the twelve years it has been in power that it is now hopelessly out of depth. “Drowning” Street seems an accurate description of the problems being created in No 10 and No11.

The growing health crisis will continue to grow and many other services will decline as treasury revenues fall against soaring borrowing.

One in five of Britain’s population now lives in relative poverty. As The Times reports today – “Real wages continue to fall despite the UK’s unemployment rate dropping to its lowest level since 1974, official figures reveal today. Data from the Office for National Statistics shows sharply rising inflation outpaced wage growth, leading to a decrease in real total pay of 2.4 per cent year-on-year in the three months to August.’

Household debt is soaring. Homelessness, the ultimate indicator of political and economic failure, is on the rise. The number of actual homeless people is up 17 per cent against pre-pandemic measurements – and the number of social tenants becoming homeless has doubled.

The present government will not be able to stop a recession or a lengthy period of stagnation (at best) and declining living standards for the vast majority of households for a considerable period of time.

As recession tightens its grip, investors look elsewhere; the pound falls further – the feeling grows that you’re in an economic death spiral. And so it will be. Next year will not be a happy one.