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  • Writer's pictureMonmouth Capital

Q3 2023: What happened to the "R" word

For a while, everyone was talking about recession. I remember conversations (in overpriced cafés or members’ clubs, naturally) in which people talked as if we were already in The Great Depression.

Yet after reaching a frenzy in mid-2022, the “R word” seems to have dropped from public discourse.

Throughout 2022 there were apocalyptic warnings about the UK. CNBC breathlessly reported that “Britain’s businesses are ‘running out of fight’ as country faces longest-ever recession.”

The phrase “running out of fight” really made me laugh, as if Tower Bridge was full of entrepreneurs slumped in defeat and zombies had taken over the Blackwall Tunnel.

It was patently absurd at the time (as I wrote here).

That’s entertainment

A year on, what’s happened? I haven’t noticed any great reckoning along the lines of, “Yes, it’s true, we were forecasting a [global / US / EU / UK] recession for months and, er, it never happened…”

I think neither the producers of forecasts, nor the consumers (us!), are actually that interested in this level of reflection.

I conclude that it’s about two things: entertainment and jobs.

1. Even though we know the forecasts are rubbish, we enjoy the intellectual, well-argued, nicely presented entertainment.

2. Meanwhile, suppliers are happy to keep producing this content for us to consume, sustaining many jobs.

If it’s just entertainment, why does it matter?

Except that… something doesn’t sit right with me about that conclusion. These are not football pundits making forecasts about who will finish in the top 4 in the English Premier League.

With economic forecasts, we are talking about highly-paid, respected and educated people, devoting themselves to reports which are about the real world – jobs, earnings, growth, business activity. Real life that affects us all, not just 22 players on a field.

People take them seriously: governments, businesses and individuals will adjust their behaviour based on some of these forecasts. So they affect the real world.

But it gets worse. Not only are the forecasts frequently wrong; sometimes the actual historical data is wrong, too.

A highlight for me was the recent revision in the UK’s GDP figures. Forget the details: the effect of them was to take the UK’s post-Covid recovery from “the worst performing economy in the G7” to “as strong as France’s and better than Germany’s”!

Don’t hold your breath

If there’s uncertainty about the recorded data itself – and revisions to measures like GDP are much more common than most people realise – then there should be a truckload of uncertainty attached to forecasts about that data, and a lot less bluster and false confidence.

That’s not going to happen any time soon. The organisations producing these forecasts are not incentivised to measure and report on how useful their previous forecasts have been.

As consumers of this content, we’ll have to do the heavy lifting instead. Accept that part of any forecast is entertainment, is likely to be wrong – and weigh it accordingly.


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