Six years after Britain decided to leave the European Union, market participants see a country in crisis: The UK is stumbling toward recession as inflation spirals while the pound is on course to retest historic lows.
Close to three-quarters of respondents in the latest Bloomberg MLIV Pulse survey were bearish about the country’s future at a time when the cost of living is surging, growth is slowing and relations with its biggest trading partner — the EU — are souring. More than four-in-five expect a recession within a year, while most see the pound at risk of touching early-pandemic lows and bad days ahead for British stocks and bonds.
Unease has gripped the nation. Prime Minister Boris Johnson, whose own party has attempted to remove him from power, is risking a renewed trade fight with the country’s all-important EU neighbors as he looks to rejig the post-Brexit settlement. The rising cost of living, fueled by supply chain issues and the war in Ukraine, is becoming a bigger worry, as are concerns about growth.
“The UK looks to be in one of the worst positions,” said Oliver Blackbourn, a London-based portfolio manager at Janus Henderson, which oversees more than $360 billion globally. The country’s situation is “more stagflationary than other major regions, with higher current inflation, expectations for a more prolonged surge in prices and weaker forecasts for economic growth in 2023.”
MLIV users were asked what the pound, which is already down around 10% this year to $1.22, would do first: sink further to $1.15 — nearly matching the multi-decade low it hit early in the Covid pandemic — or rebound to $1.35? Around 76% of respondents in the survey, which was completed by 538 participants, predicted the more gloomy outcome.
Overall unemployment continues to drop while non-farm employment continues to rise in the College Station-Bryan Metropolitan Statistical Area, according to June’s economic indicators released by Texas A&M University’s Private Enterprise Research Center.
From March to April, the unemployment rate decreased one-tenth of one percent, making April’s rate 3.3%. According to previous reports, there has been a continued decrease in the local unemployment rate over the past few months.
“Our unemployment rate is one of the lowest in the state,” said Andrew Rettenmaier, executive associate director of the Private Enterprise Research Center. “It’s second to the Austin-Round Rock and Amarillo MSAs which have a rate of 3%.”
April saw an increase of 0.5% for local non-farm employment. That indicates local non-farm employment has increased the past two months after a slight decrease in February. The employment level for leisure and hospitality still remains 2.8% lower than in February 2020, Rettenmaier said.
Central banks from Washington to Zurich are raising their benchmark rates to suppress inflation. The Bank of England on Thursday raised interest rates for a fifth straight meeting. Policy makers were divided on just how big the increase should be, underscoring the difficult position they’re in balancing the need to control inflation without destroying growth.
Other experts are divided, too. Karen Ward, chief market strategist for Europe at JPMorgan Asset Management, said the BOE was moving too slowly and “may have to deliver more rates rises further down the line.” However, David Bharier, head of research at the British Chambers of Commerce, was worried that “the decision to raise the interest rate will add concern to businesses amid a weakened economic outlook.”
Against that backdrop, around two-thirds of MLIV poll respondents see the yield on 10-year UK bonds — currently just under 2.5% — hitting 3.25% before they touch 1.25%.
“What we like to keep an eye on is how it is relative to the employment that we saw back in February 2020, the pre-pandemic high,” Rettenmaier said. “In April, local non-farm employment is up 2.3% relative to what it had been prior to the pandemic.”
Local real taxable sales saw an increase of 3.8% for April or 6.4% higher than in April 2021. April is the first month in 2022 that an increase in real taxable sales has occurred.
“That is great news,” Rettenmaier said. “Those are real dollars, inflation adjusted, and it’s great to see that they’re up even as inflation has been rising.”
The report looked at non-seasonally adjusted employment. Employment levels rose in the spring and fall however dropped in January and during the summer months. Compared to Lubbock, Austin and the rest of the state, College Station-Bryan saw a larger decline in state government while local government employment was similar.
“The other one we wanted to take a look at is the seasonal patterns associated with employment in the leisure and hospitality industry,” Rettenmaier said. “Locally, ours has been more similar to those other two cities compared to the other variable employment series for state and local governments.”
Wade Beckman, board chair for the Bryan-College Station Chamber of Commerce and owner of 3rd on Main, Admiral Catering, Amico Nave and Shipwreck Grill, said with summer approaching his restaurants are off to a better start than in previous years.
“Lots of people are out, and a lot of them are coming out more often to enjoy the fact that there aren’t as many people in Bryan-College Station right now,” Beckman said.
Beckman said the catering business has been consistent as it recovers from the pandemic, though restaurant sale revenue is fairly flat.
“It’s like we’ve made a comeback, but we haven’t quite gone up from there,” he said. “I think that just has to do with prices, gaps and the economy.”
As inflation continues to make prices soar, Beckman said he has started raising prices by 12%, with some menu items going even higher. They still haven’t even come close to covering the margin difference in pricing, Beckman said.
“Unfortunately for restaurants we don’t have an easy mechanism like you do in retail or grocery stores,” he said. “If a grocery store receives a can of beans for $2 more, bang your price is $2 more, so they’re making the same margins. Restaurants have taken a big hit.”
Beckman said hiring has leveled out over the past several months as people are even coming in to fill out applications, but difficulty remains in hiring kitchen staff. To keep up with inflation and attract workers, wages were raised 30-35% over the past two years, Beckman said.
“It’s sad to me that wages have gone up and there’s nothing we can really do about it; it’s hard to get people,” Beckman said. “People got to enjoy that wage increase for a very short period of time, and now you almost have to pay people these higher wages just for them to live.”
Glen Brewer, president of the Bryan-College Station Chamber of Commerce, said the numbers are looking good. Though businesses are still clambering for employees and are having difficulty with supply chains, Brewer said those issues are starting to ease up. The primary concern has been inflation.
“I think everyone is a little cautious because of the inflation issue, the potential for a recession, but things are going better,” Brewer said. “Every business is being cautious and trying to squeeze out every little bit of productivity they can to offset inflationary issues.”
Inflation has yet to affect many people’s spending habits yet, Brewer said.
“After going through the pandemic, our businesses understand we haven’t shut down, we haven’t lost anyone, so while this might present a lot of challenges, they’re not nearly as bad as what we’ve faced the past couple of years,” he said.
Rettenmaier added that as a whole the local economy has been looking good, June’s report indicates positive trends and the College Station-Bryan MSA has grown faster than other cities around the state.
“This report looks at data from April, so these past two months (May and June) we’ll keep an eye on our real taxable sales to see how they keep pace with the rising prices,” Rettenmaier said. “We take that into account when we calculate the inflation adjusted sales.”
Source: The Eagle