Small business owners are already being hit as consumers cut back on non-essentials
hese are worrying times for Claire Tasker’s jewellery business. With soaring living costs putting acute pressure on households across the country, the Hertfordshire-based goldsmith has seen first-hand how consumers are cutting back.
As far as experts are concerned, the question is not whether the economy will slow down but whether it is time to start mentioning the R word: recession. David Blanchflower, a former member of the Bank of England’s monetary policy committee, is in no doubt. “Every piece of evidence suggests that recession is coming,” he says.
If the economy does slip into recession, the Treasury and the Bank of England will be blamed for making policy errors. A Treasury spokesperson said: “We’re continuing to support the economy now. We’re providing a £22bn package to ease pressures on households this year and helping businesses, including through a tax cut worth up to £1,000 for half a million small businesses.
Consumer spending could be propped up by more than £200bn of savings built up by households in the pandemic. However, the savings glut was mostly concentrated among the top 40% richest in society, while lower-income households lost money. While average wages are not expected to keep pace with inflation, those in the public sector and precarious zero-hours jobs are expected to lose the most ground this year.
“By focusing on containing any second-round effects on wages and prices, the Bank risks tipping the economy into recession,” said Paul Dales, the chief UK economist at the consultancy Capital. Although he expects Threadneedle Street to raise interest rates to as high as 3% by 2023, a severe downturn could force it to move more slowly.
“History suggests that once you have got an inflation problem there is quite a lot of economic pain you have to go through to get rid of it,” King added.For Tasker, the situation is complicated by Brexit, as higher shipping costs and delays make it harder to sell to customers in the EU. During the coronavirus pandemic she had benefited from booming domestic demand, although that is drying up.
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