Escalation of the energy crisis inflationinside it Britannia political chaos, panic in the bond market, a sharp tightening of monetary policy and a recession are the hallmarks of 2022. However, the very first sentence in this text might as well have been written in 1979 or 1990. Then, as now, a poisonous cocktail of risks worked. painful recession and warned that the UK economy was in for years of suffering. But apart from the immediate difficulties, the reality could hardly be more different. In the decades following the 1979 and 1990 crisis, the UK economy boomed. When the red dots on the screen multiply and the news gets worse and worse, it can really feel like the sky is falling on your head. When this happens, we must remember that boom and bust cycles are the very nature of economics, and the wide fluctuations in investor, market, and consumer sentiment are very rarely consistent with these fundamental principles of economics. Economic data should come with a warning that current conditions are not a reliable guide to the future! This is also true when times seem good. Remember 2005-2006?

2022 was a bad year. 2023 is likely to be better. In several meetings, our clients—although estimates for next year are at the lowest level of variation—seem to be quite optimistic. On the whole, this is true. We forecast the UK economy to contract by -1.3% compared to Bloomberg’s -0.9%. However, we beat the consensus forecast for 2024 by 2% compared to Bloomberg’s 1%. Despite the damage from Brexit, the UK remains a generally healthy economy with strong fundamentals and only moderate structural problems. If he manages to quell unrest in his domestic political arena — and recent government leadership gives us hope — then normal business cycle dynamics could resume from early summer 2023. Finally, we expect inflation to start to ease, economic conditions to turn from restrictive to neutral, monetary and fiscal policies to remain reasonably tight but no surprises, the labor market to be inelastic due to talent shortages, and the global energy shock to begin to gradually subside. no. .

* Mr. Calum Pickering is an economist at Berenberg Bank.