Potential positivity
Lyons takes a different view from the consensus right now in that he says both the UK and global economy will have growth that is in positive territory this year.
His view is that with unemployment levels still very low in the UK, that should enable economic growth to remain positive, even if it is very weak.
The most recent IMF forecast for the UK economy is for negative growth of 0.3 per cent this year, but Lyons forecast is for 0.3 per cent of positive growth.
He notes that there is not much difference in the IMF’s forecasts for the German and UK economies this year, and he expects them to perform in line with each other, and deliver positive growth this year.
But there is another side to the labour market strength, says Bartholomew.
He says one of the reasons for the strong employment numbers is that many workers retired early in a society where populations are generally ageing.
His view is that ageing populations generally mean lower growth and lower interest rates in future, even if they also mean that unemployment is also structurally lower.
But Zangana says the lesson of recent years has been that, contrary to the previous theory held by many market participants, ageing populations and a reduction in the size of the labour force is actually inflationary, even if it also reduces the growth rate in the economy.
This is because a smaller pool of workers being available in an economy over the longer-term would be expected to drive wages higher.
Lyons is another who says the previous low inflation to which many investors had become accustomed is ending, with a greater share of GDP likely to go to labour in the form of higher wages, and also a reversal in the trend of globalisation, which tends to push production costs down.
His view is therefore that interest rates and inflation are likely to be higher over the longer term than many investors have been used to.
Robertson says the long-term growth rates in the UK are lower than has historically been the case, but that even as inflation falls, it could be that it remains sufficiently high over the coming year that interest rates cannot be cut by the BoE as a way to stimulate economic growth, and that many market participants currently are expecting this – something which is evident from the performance of many assets in 2023 so far.
Monetary policy tends to have a profound impact on investment returns and other client outcomes, and over the next year it is likely to be a major factor in the prospects for the UK economy.
