To think a recession is looming?

[GrannyBloomers]

I was quoted £2 a litre for heating oil. £1000 for 500 litres, a matter of weeks ago it was roughly a quarter of the price.

Energy bills set to be £3k per annum - potentially more when a new price cap comes in in October.

Diesel near me is 171p and rising.

I'm in a 3 bed semi, nothing special. I need at least 1500 litres of oil a year (it runs the hot water too). That's say £3k. No gas but electric. I'm doing ok with cutting use = £1.5k per annum.

That's 4.5k at todays prices for household power. What will it be in October - 6k, 9k more?

This is before other costs increase - food will go up when the cost of storing it (refridgeration etc uses energy) and transport also increase.

If all the average person's income is spent on rent/mortgage/ bills and energy, then there's no money to spend on anything else. No eating out, no leisure, no holidays.

Surely a huge recession will follow.

And what if a much higher proportion of people need benefits?

@Burgoo yes, I appreciate that which is why I said it’s not possible for all. I was disputing that no one in the public sector is getting a pay rise when I know that isn’t the case for the part of the public sector where I work.

I used to work in the public sector & we had increments which if we met our targets each year resulting in a annual payrise.

It's been coming for a while

[quote deadlanguage]Not all public sector bodies are funded out of general taxation. For example, the BoE, the FCA, FSCS, and the Financial Ombudsman Service are funded by industry levies. www.bankofengland.co.uk/about/governance-and-funding[/quote]
In which case they’re not public sector.

@StoneofDestiny

The cost of living crisis, yes. But that doesn't mean a recession.

@Blossomtoes yes they are. They govern the financial sector. And are listed on the government website as public bodies… www.gov.uk/government/organisations

Quangos are listed as public bodies but they’re not in the public sector in the accepted sense, which is funded by taxation.

Well it’s not the private sector is it? And the fines that they raise go to the Treasury.

A public body but not public sector in the usual sense of being funded from general taxation. Not a particularly relevant example of public sector which, as stated, will be receiving below inflationary pay increases.

@deadlanguage

Wage growth in Q4 2021 was over 4% so if you aren’t getting a pay rise this year then it is worth considering looking for a new job, but obviously that is an average across all sectors and it won’t be possible for all.

Yeah - 4% on average - that includes the vast rises from Sir Bufton Tufton and chums and the independent MP review body that always seems to think MPS are due a decent rise each year.

Meanwhile, for the rest of us.....

They are still subject to constraints on how much they can raise pay - they aren’t allowed to just massively increase levies. Not like private sector organisations that can increase their income by selling more or raising prices.

We don’t know yet what the civil service will receive so we also can’t say for sure that will be below inflation.

@deadlanguage

The public sector encompasses a lot of bodies whose pay is all set differently. I work in the public sector and most employees in my organisation are getting a pay rise of at least 4% or more depending on performance, some up to 20%.

1.75% for Soulbury paid staff, after long negotiations. Hours are incredibly long because we only have 10% of the staff we need in our LA department. Cuts hit hard. 1.75% is a pay cut in real terms.

[quote Burgoo]@deadlanguage

The NHS at least doesn't have performance related pay - as in you don't get more for performing higher. I can't imagine it is the same in education etc though in civil service that may be different.

The NHS has a pay scale that is fixed with no room to move. We don't get any more than a few % at most normally and certainly not 10%+.[/quote]

How do you get a pay rise? Is it automatic increments?

It’s an interesting time, isn’t it ?
I’m seriously considering giving my car back & getting a train ticket into work… the odd times we both need the car, I’d settle for an Uber. We probably can manage on one car. Another consideration is to drop my daughter’s gymnastics lessons & keep piano & ballet. We need to save as much as we can.

[quote BrightYellowDaffodil]@StoneofDestiny

The cost of living crisis, yes. But that doesn't mean a recession.[/quote]
The cost of living crisis is likely to lead to a recession. If the cost of everything is rising, and particularly the cost of all forms of energy, people will have less money to spend. Costs look to rise significantly further this year and the government are increasing taxes significantly too so even less money to spend.

[quote BrightYellowDaffodil]@StoneofDestiny

The cost of living crisis, yes. But that doesn't mean a recession.[/quote]
The only way this doesn't end in a recession is if the Govt steps in and replaces the drop in consumer spending with Govt Spending.

There are various ways they can do this, but it looks like Sunak is more interested in auditioning for PM with the geriatric Conservative Party crowd, than he is with actually managing the public finances for the benefit of the whole country.

So tell me, @rainingsnoring and @BambinaJAS, why exactly do you think the cost of living downturn will cause a recession? Do you not think that there are many, many more facets to the economy than consumer spending?

@BrightYellowDaffodil

So tell me, *@rainingsnoring and @BambinaJAS*, why exactly do you think the cost of living downturn will cause a recession? Do you not think that there are many, many more facets to the economy than consumer spending?

Its quite simple.

Consumer spending drives about 70% of GDP.

In the aggregate, my spending = your income

As gas, energy, internet/phone etc. prices rise due to inflation & external supply-side shocks, more disposable income will be re-directed to paying for these necessities, and less will go to dining out, buying new clothes, buying convenience food, theaters, holidays etc..

When the businesses in those sectors have less revenue coming in, they will start to cut costs in order be able surivive and/or maintain positive margins.

Its worth stating as well that many SMEs are barely hanging on, as they have been crippled by brexit, covid, and now sky high energy and gas prices.

Because of this, they will either go under (higher insolvencies), start letting go of people to cut costs, or raise prices. It could also be a combination of letting go of people and raising prices as well.

The aggregate result of this is higher unemployment, and reduced economic
output.

This is also why the BOE is terrified of raising rates right now.

If they were more aggressive with the rate rises, they would end up causing an even larger drop in economic output (recession), as this would combine with the cost of living crisis to increase the level of mortgage defaults in the various geographical areas of the UK that are most exposed to the cost of living increase.

I'm public sector and will be getting a 1.75% pay rise which is effectively a pay cut given the pace of inflation. Demanding extra cash is not exactly an option for me!

Yes, we are going through a period of high inflation, mainly due to the cost of fuel and energy which increases costs across the board for domestic and business/industrial users.
However, things will settle down somewhat when the Ukraine fighting ceases, especially if Putin is deposed.

We need to prop up our currency and increase interest rates, and hopefully house prices will start going down. Unfortunately, the government has been massively overspending and likes minimal interest rates to make it more affordable for the exchequer to manage the burgeoning national debt. Our economy is really in a hole.

I don't understand is a few things here. A lot of industries are crying out for staff and increasing wages offered accordingly (I realize not the case in every industry).
Is this not a sign of a strong economy? Or is this a temporary/post covid bounce which is expected abate, but cost of living continues to increase?

It may have been mentioned already. But why haven’t the government scrapped the NI hike there’s still time to do it before April 1st. Yes we need to raise money to clear off debt but is this seriously the best year to start doing it

Thanks @BambinaJAS - makes sense

But this is a shocker for me…

Consumer spending drives about 70% of GDP.

Do you think that figure should be lower? Shouldn’t the nation be making more MRI scanners or other high value goods and services rather than relying on flogging one another coffee? It would make our economy more resilient surely?

Don’t mean to derail the thread but I’m interested.

@mjf981 "A lot of industries are crying out for staff and increasing wages offered accordingly (I realize not the case in every industry).
Is this not a sign of a strong economy?"

No, a supply shortage (across segments - human resources, semiconductors etc.) is not the sign of a strong economy. Quite the opposite. Supply shortages result in unsustainable price rises that drive inflation. When inflation starts to get out of control (usually when the difference between GDP growth and inflation is greater than 3-4%), a larger percentage of income is spent on fewer items, reducing demand, which leads to decreased output, which cyclically reinforces inflation (money chasing fewer items). This reduction in demand and decreased output leads to a recession.

Periods of run away inflation are almost always followed by recession. This is the reason central banks have an inflation target to ensure it doesn't get out of control (i.e., difference between GDP growth and inflation isn't more that 1-2%)

@PenStation "Shouldn’t the nation be making more MRI scanners or other high value goods and services rather than relying on flogging one another coffee? It would make our economy more resilient surely?"

It is unfortunately down to the short term choices made by our political class. Years of under-investment in education, industry and research in exchange for easy money from non UK headquartered service based businesses.