Hello there, impending recession

All signs now point to recessionary forces coming into play in the British economy. Consumer spending has slowed, as the pound’s drop is being passed through prices to consumers. The effects of sticky prices are very apparent across the UK economy, from wine importers announcing price hikes, to a highly publicized rift between Tesco (a value-oriented supermarket chain) and Unilever. Decreased consumer expenditures poses problems for UK firms that don’t export; these tend to be small businesses, and combined with slowdown in forms of spending, is likely to lead to considerable market reallocation (in other words, small businesses will fail at higher rates). For consumers, rising prices and stagnant wages indicate that spending is unlikely to turn around in the near future.

The interesting question is whether this will impact the May government’s Brexit strategy (to the extent that there the negotiating approach could be said to resemble any strategic behavior). While the vote was fueled by anti-immigrant sentiment, tangible price increases (experiences with inflation) have potential to erode public support for the government, replacing immigrants as the public’s number one bogeyman. Mark Carney has been quick to publicly assert the Bank of England’s independence, so it will be interesting to see how the government adapts.

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Hello there, impending recession

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