Talking ‘bout a recession: Is the current state of the UK markets just extended seasonal malaise?

I don’t think I would be alone in saying that mid-February is my least favourite time of year. Whilst the days are getting slightly longer and a few brave daffodil shoots are tentatively starting to appear, spring is someway off and it’s still cold, dark and a bit miserable. At the risk of turning this into a slightly tortuous metaphor, it seems to encapsulate the wider state and mood of the economy more generally at the moment. It all feels a bit “mid-Feb”.

In keeping with the season, the UK’s stock markets are in deep hibernation. There has been talk of IPOs returning for some time now and anecdotally SEC Newgate has been involved in a number of very encouraging discussions, but we are yet to see evidence of them coming back in force. The private capital markets have fared only marginally better, the venture valuation bubble has well and truly deflated. Whilst capital is still flowing, it is with significantly less alacrity than a few years ago, with only a handful of venture mega deals to plump the figures.

The news over the last few weeks will not have done much to quell that feeling of seasonal malaise either. Unlike the blooming of daffodils, the imminent return of healthy, active public and private markets appears less predictable than the change in seasons. 

The beginning of the year always brings a slew of “prediction articles” in the media where industry experts point to what they think the coming year will hold. What was notable from a review of such articles at the start of 2024, compared to previous years, is the lack of consensus amongst the economic and industry soothsayers. It would not be revelatory to say that the past few years have been, at very least, unstable and complicated, which might go some way to explaining this lack of consensus.

Earlier this week analysis by Goldman Sachs concluded that Britain’s economy is 5 per cent smaller than it would have been if the country had chosen to stay in the European Union – which may go some way to explaining the current economic gloom. Unfortunately, the prevailing political discourse seems to be ignoring the impact of that particular elephant.

But its more than that, volatile geopolitics and war, persistent Brexit and pandemic hangovers, inflation and political instability have all contributed to something that feels like a recession but with many of the usual markers for recessionary times (such as high unemployment) notably absent.  

So, it was probably not a surprise to anyone when the ONS December / Q4 GDP data out came out today showing that we are indeed in a technical recession. On Tuesday, in anticipation of the ONS figures, Mehreen Khan made a valiant effort to do a version of the old ‘let’s not talk ourselves into a recession’ piece in the Times.

With my communications hat on, I have always been interested in the idea that we can talk ourselves into or out of a recession. I suspect that the answer is, you can…sort of. Economists often talk about market and consumer ‘confidence’. Measuring and influencing something as nebulous but important as changes in “animal spirits” when trying to work out what comes next for an economy is tough.

For all the mid-Feb gloom there are reasons to be optimistic. Based on the latest Global Risk Survey from Oxford Economics, the risk of global recession has halved in the past 3 months. Inflationary pressures are easing and business pessimism is fading. According to Oxford Economics for the first time in quite a while, the risks to the global economy are broadly balanced between positive and negative scenarios.

Despite the recessionary figures from Japan today, Asia is on the up and up and now accounts for 40% of Global GDP. Across the pond, the picture is also improving, ‘less rapid slow-down in inflation figures’ notwithstanding, the US now has the strongest labour market since the 1960s with twice as many jobs created in January as expected.

Closer to home another potential chink of light peeking through the murky blanket of mid-Feb grey is the upcoming election. Whatever your political leanings, it should bring with it a period of relative political stability and more importantly, predictability, which is what most investors and management teams are desperately looking for.

From a corporate communications perspective one of the most effective counter narratives to recessionary pessimism is to focus on building corporate stories along the lines of strong fundamentals and resilience. It sounds like a whisper, [but] finally the tables are starting to turn.