By Rob Woodward: If you had just one ear to the ground during some of 2022, you would have gathered that Britain was going through a period of immense trouble and strife – politically, economically and culturally. Without a doubt, 2022 was a tumultuous year and one that many would like to see the back of. The normal steady workings of the Downing Street machine has literally seen its wheels fall off one by one, with more Prime Minsters shoved through No10 in one year than at any time in British history.
The problem is that the chaos caused is now likely to turn into a period of consequences. It is the consequence of seeing years of improving corporate profits and soaring executive pay in the backdrop of falling wages in an inflationary spike for everyone else that will be dramatic. Here are our top 10 predictions for 2023.
In the first quarter of 2023, strikes will dominate the news narrative. Public support for strikes will not fall significantly, whilst the government attempts to divide public opinion and focus on militant unions.
On the one hand, the desire for pay to keep up with inflation and close the gap of falling living standards will see one industry supporting another. On the other, there will be an unwillingness from employers and shareholders to meet demanded pay increases. When you consider just how bad inflation really is, it is not hard to understand that this will not end with compromise, smiles and handshakes.
Therefore, the points of this conflict, that is, pay and the protection of working conditions in an era of modernisation and technology (the tools for increasing profits further), are going nowhere. And as the economic crisis continues, the next twelve months will be painful in all sorts of ways. The Conservative party will fail in their attempts to associate Labour with militant union action.
The year 2022/23 will be listed as another winter of discontent in the history books.
Predicting economic performance in the UK for next year is not rocket science. The entire year will be in or close to recession. Predicting the amount of that recession is the problem. The annual expectation for most commentators about GDP growth in 2023 is about minus 1.25 per cent, broadly in line with the OBR and the Bank of England’s predictions. This would indicate a fairly mild recession. However, the reason why I would put this figure higher at, say, -2 per cent is because of other ongoing, more recent issues that have not been factored in, such as strikes, escalating ill health due to the continued cratering of the NHS and stronger than expected household belt-tightening as the cost-of-living crisis gets worse, not better.
And whilst there are other key contributors to the 2023 economic contraction that are known – no one knows what effect they will really have. Frozen tax allowances, higher mortgage payments, falling real wages and, of course, the continued high energy costs (although they will likely fall rapidly) are some of them. Other areas like exports will fall as the global economy contracts. In that environment, the opposite tension string is pulled. When unemployment starts to rise, the taxpayer then has to burden the increased cost – causing investment in other areas that stops growth from falling – to fall. It’s a vicious cycle – and the government are in no position to fix it because they are focused on something else – political infighting and survival.
The so-called mini-budget last September will have longer-term impacts on borrowing costs for both businesses and consumers. The effect of changes in corporation tax and business rates on already dwindling business confidence will lead to a contraction in firms’ investment in 2023. None of this bodes well for a turnaround in 2023.
In 2022, India overtook the UK as the fifth-largest economy in the world by GDP. In 2023, France will also overtake the UK. Worse still, PPP or purchasing power parity will see the UK fall to 10th slot next year.
Corporate and SME insolvencies in 2023 will far exceed the worst of the effects of the financial crisis in 2009.
Many people do not understand the basics of inflation. If a product increases in January 2021 from £10 to £11 (from the previous January) – inflation is 10 per cent on that product in one year. If that product then does not increase at all the following year – inflation is zero. However, the price is still 10 per cent higher than it was. Has your purchasing power increased with a corresponding pay rise? If not, your standard of living falls because your disposable income has fallen.
Whilst the upward spiral of inflation is now thought to have peaked for Q4 2022, this is in part due to the Government’s energy price guarantee. That guarantee is being withdrawn in April and although energy use will fall because temperatures will increase, it will still be a drag on the economy. Reports will soon arrive that inflation is falling – but don’t forget, that doesn’t mean things are getting cheaper; it just means the cost of them is getting more expensive more slowly. Inflation by the end of 2023 will still be stubbornly high in real terms – but will be reported as falling back to normal – say 2 or 3 per cent.
The forecast for the Bank of England’s interest rate is now expected to stabilise at about 5.25% by Q4 of 2023. Millions of lower fixed-rate mortgage deals will need replacing, which will increase the pressure on household discretionary spending even further. This will likely cause an upward wage demand as workers seek to increase their income – itself becoming inflationary.
Given the circumstances, employment numbers hold up really well and will not change significantly – albeit the current record numbers of people in work will have peaked and will start to move in the opposite direction later in the year. Unemployment itself will not be a story in 2023.
There is a caveat to this, though. Around 6.5 million people, or 20 per cent of the total workforce, plan to quit their jobs in the next 12 months, according to new research from the CIPD. Better pay was the motivating factor for 35%, with 27% seeking increased job satisfaction and 24% looking for a better work/life balance. This all feeds into the inflationary argument, particularly as many employees are not happy that new hires were found to be earning more.
The current Conservative party are in the final death throws as a political force in their current iteration. This is evidenced by the simple fact that we have had to witness the spectacle of three prime ministers punching it out toe-to-toe in 2022. Given that this is a political party that has, for 200 years, espoused tradition, moderation and stability as the central tenets of its political philosophy, you would be excused for thinking you’d taken the wrong flight, fallen asleep and woke up in Italy. As one political commentator said recently – it’s as if they seem to have been reduced to a hippy commune and insisted on giving everyone a turn at being in charge.
Central to this political circling of the plughole is, yes, you’ve guessed it – Brexit. It will continue to cause more internal rows and more disruption within the Tory party. And there is an even bet that we may see yet another challenge to the Prime Minister’s leadership as he will very soon be seen as someone who was not just one of the architects of Boris Johnson’s ousting but is not, economically speaking, a hard Brexiteer. As the saying goes, Sunak is in office but not in power.
In the meantime, those who are plotting for Johnson’s return (which they will) have to be mindful that in 2023 the inquiry into whether Johnson misled parliament over Partygate will likely be published. Only a complete whitewash will save his skin. If that enquiry confirms he did indeed mislead the commons, his political career is over. In saying that, with Johnson, who knows! He will, of course, cause considerable problems for Sunak from the backbenchers – when he’s not on holiday, of course.
By mid-2023, support for Brexit will have fallen significantly. In the last few years, Brexit as a discussable topic has become so toxic that no one dared to talk about it. Not so in 2023.
The economy will be in or close to recession for all sorts of reasons straight from the start of the year. Global supply chain issues will continue for one reason or another; the pandemic is not over – and Brexit continues to cause economic gridlock. But so will the strikes, and the recession will drag on. With it will be the start of rising unemployment. One way of jump-starting the economy will be to get a deal done with the EU. The whole idea of ‘taking back control’ will be replaced with ‘get Britain working again.’ And by ‘working’ – the impression that most people have now is that almost everything in civil society is breaking down because of Tory mismanagement and Brexit.
The steady stream of red-tape-related snarl-ups at the borders of Europe causing economic hassle will no longer be acceptable, and public anger at the failure of Brexit to deliver any of its promises will become more strident as the year progresses.
Not so long ago, people cursing Brexit were seen as ‘bitter’ Remainers but as the awful news piles up and the data confirms it – Brexit will be seen as the enemy of economic prosperity. The toxic internal fight within the Tory party will continue.
Every economist with a reputation to protect – will confirm that Brexit has, as many predicted, including the OBR, permanently damaged and scarred the economy. The Tories will, during the course of 2023, see this public anger turn into something else. It will further fracture the Tory party during 2023.
When it comes to poverty, you know you’re in a losing battle when the number of children living in poverty in key worker households exceeds one million next year for the first time. This terrible statistic shows hard-working households with jobs such as teaching and public health falling into poverty – according to research from the Trades Union Congress (TUC).
The research showed 19% of key worker households have children living in poverty in 2022, an increase of over 65,000 households over the past two years to 989,000.
Overall, there are 14.5 million people currently living in poverty in the UK, according to the Joseph Rowntree Foundation. That includes 4.3 million children. British children living in poverty have reached new records in 2019, 2021 and 2022. Unfortunately, 2023 will be no different as yet another record is reached.
It is inevitable that the cost of living crisis will worsen poverty rates. But now it is predicted that more than one million more people are set to be plunged into poverty this winter because of it.
Property and the Housing Crisis
The housing crisis has been going on for years. It is about political failure and a total lack of courage by all political parties in the last four decades that this has become a real problem. Not enough property has been built for all sorts of reasons, and political meddling has been at the heart of the crisis.
By the end of 2023, about a quarter of all households will be privately rented. Rent will continue to increase as more people decide not to buy. Because of this, there will be a significant fall in property transactions, which are already predicted to fall by around 25 per cent next year against a backdrop of rising mortgage arrears. In addition, 1.8 million borrowers on fixed mortgage rates are expected to remortgage next year after buying in 2021 to take advantage of the stamp duty holiday – not forgetting that mortgage rates are significantly higher than they were in 2021.
To add further pressure – new lending to buy-to-let landlords is already predicted to fall by about a third in 2023 as well.
As the lack of stock, rising interest rates, rents and general inflation piles pressure on household incomes further – homelessness will become a significant feature in the latter half of 2023. Complaints about the housing crisis will get louder.
Predictions that Property prices will fall by 25 or even 30 per cent are exaggerated, but prices will fall – possibly by as much as 15 per cent in 2023.
The NHS is under terrible strain for several reasons, and the government has put forward a plan. The trouble is, it won’t actually work. If, and only if, the NHS increases its output by 30 per cent, the current waiting list will still increase to something like 8.7 million by next October/November. According to the Institute of Economic Affairs, its “Plan Middle scenario sees waiting lists peak at 8.7 million in October 2023 before almost reaching pre-pandemic levels by the end of 2025. In the most pessimistic scenario, Plan High, waiting lists peak in December 2023 at 10.8 million and remain several million above pre-pandemic levels by the end of 2025.”
The problem is that there are large numbers of returning ‘missing’ or ‘hidden’ patients and no one knows if they will come back for treatment. If that demand does not materialise, the backlog could start to be reduced well before March 2024. But as the IFS says – while this may be good news for waiting list figures, it would raise important questions about the well-being of the missing patients who never return for treatment. Some of those ‘missing’ people have died, and others have chosen to go private, but many more have simply not sought treatment. “At this stage, we simply don’t know what this will mean for their welfare or health in future.”
Just three months ago, research found that one in 20 people in the UK who are neither employed nor seeking paid work are suffering from long Covid, with the figure more than doubling in the past year.
The proportion is far higher than for the one in 29 people who are unemployed but seeking work who have long Covid symptoms or the one in 30 employed people who are sufferers, data released by the Office for National Statistics (ONS) shows.
Next year, it is inevitable that declining public health will have an impact not just on the NHS but on employment, inflation, poverty and the economy more widely.
Ukraine: The Ukraine war is having profound effects on the UK economy, as it is with the rest of the world. As Ukraine continues to claw back territory lost following Russia’s invasion, members of the Kyiv-based American Chamber of Commerce are confident that Kyiv will prevail and win the war. No one knows what will happen, and this prediction seems overly optimistic. The most likely scenario is that the conflict (somehow) slows up and comes to an end in 2023 at some sort of stalemate.
Smart Meters: 85% of UK homes will end up being equipped with smart meters. This will allow individuals to see and understand how they are using their energy and how much it costs, with no energy bill estimations and dodgy direct debit billing.
Unemployment: This is something that most will not see in 2023 but is still significant in 2023. The rise of artificial intelligence and robotics technology ends up hitting the target of replacing 1 in 5 retail workers. 500,000 UK retail jobs will be replaced by robots by the end of the year. And this will only be the start of a new workplace revolution that will continue.
Geopolitics: After the build-up of (pre-pandemic) economic hostilities being fought between the US and China – it now appears that the two biggest economies in the world are settling into something more like a war economy mentality. Various countries around the world are now finding that they are having to choose a side as they become embroiled in a global trade cold war. At the same time, Russia’s invasion of Ukraine has fractured many global relationships, not least through economic, financial and currency manipulations. The world will look very different by the end of this decade. The UK is now economically unaligned with any major world power (as it has no trade deal with any of the super-powers EU, USA or China), and this could prove to be quite dangerous going forward.