The United Kingdom was one of the leading countries in the convulsed global macroeconomic policy in recent months, especially when it was anticipated that it could enter a technical recession, an event that ultimately did not occur.
However, the country’s conditions remain weak, for which reason, a recession scenario is not entirely ruled out. At least, that’s the view from Janus Henderson, the British equity investment consultant and manager.
In interview with rate AnalystOliver Blackbourn, portfolio manager at Janus Henderson, explained how the global economy behaved in this first quarter, marked by a determined battle against inflation enfilade in an upward policy of interest rates.
It is worth noting that Janus Henderson is a global asset manager with more than 340 investment professionals, founded in 1934 in the United Kingdom. According to its website, as of 2020, it has more than 2,000 employees and 23 offices around the world.
After the first quarter of the year, how is the world macroeconomy doing?
The first quarter witnessed the continued stretching of macroeconomic tensionsas central banks continued to raise interest rates in response to sticky inflation already positive economic surprises, while the negative effects of tightening monetary policy became increasingly apparent through the problems of banks in the US and Europe.
We continue to see signs of elevated recession risk in various areas of the economy who tend to lead the labor market. Banks are making it harder to get credit, property markets are cooling off rapidly, and the price of oil has continued to fall.
Are interest rates still a major concern?
This has been a particularly rapid cycle of rising interest rates, forcing businesses and consumers to quickly adjust to the rising cost of borrowing.
Tighter monetary policy is intended to reduce activity in the economy to curb inflation, but always carries the risk of putting so much downward pressure on growth that it triggers a recession.
Unfortunately, there are always those who cannot cope with a changing environmentand the speed of interest rate hikes this time around has probably made it even more difficult.
Similarly, high asset price valuations were based on low interest rates and low real yields on government bonds.
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Rising returns on cash have somewhat reduced the relative attractiveness of other asset classes, and even higher interest rates could continue this trend.
However, we believe that the tensions that are appearing both in the economies and in the financial system may mean that we are approaching the maximum of interest rates.
Breaking this peak could provide some relief to asset markets in the short term.
How do you see the UK economy? Do you trust the government’s view that the recession has been averted?
The UK is facing to a particularly acute example of current problems faced by many Western economies.
The fall in labor supply has reduced the number of available workers, pushing up wages and causing core inflation to persist.
Food prices have also stagnated due to supply constraintswhich has offset part of the relaxation in energy costs.
At the same time, there are signs of price resistance from consumers, which has led to a contraction in retail sales, and the housing market has slowed.
This makes it difficult for the Bank of England to fulfill its mandate to bring inflation back to the 2% target within a reasonable period of time.while the British economy is already going through a period of weak growth.
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Lower energy costs have recently benefited both inflation and growth, but it is by no means certain that a recession has been avoided in the UKdespite recent improvements in consensus expectations for growth through 2023.
What does the European economy expect from its neighbor?
The European Central Bank started this cycle of raising interest rates from a level below zero. Therefore, not only has there been a rapid increase in interest rates, but also a move from negative to positive.
Given the large industrial sectors, the European economy is often seen as more cyclical in nature than, for example, the US economy.
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While renewed demand from China is likely to have brought some benefit from removing pandemic restrictionsconcerns remain that Europe may be only slightly behind the US in terms of recession risks in construction.
Economies are rarely immune to large increases in borrowing costsand Europe has already seen a considerable increase in this cycle.
