Just 12 months ago, there was a quiet optimism (within ‘retail’ – if not necessarily in other sectors of the economy) that 2022 would bring some degree of recovery after two years of the ravages of Covid-19.
Those retail businesses which had survived the on-and-off periods of lockdown were looking forward to some return to ‘normality’: customers with money to spend coming back – albeit slowly – and spending. Some chance to repair the holes in the balance sheet which had grown alarmingly in 2020 and 2021. It didn’t take very long before those thoughts were shown to be a bit over-optimistic.
The first obvious signs of problems were seen in the hospitality sector. Businesses that were ready to re-open and push forward suddenly found themselves unable to recruit staff. The pool of workers that they usually relied upon – mainly young, mainly from all over Europe – were nowhere to be seen. Many had returned to their home countries having found the UK somewhat unwelcoming, post-Brexit. Those that remained had been recruited into other sectors that had experienced a bit of a surge during the Covid period – such as warehouse or delivery work for online businesses. So even a year ago, there were many reports of pubs and restaurants which had to cancel potentially business-saving Christmas functions, simply because they couldn’t find the people that they needed to work at the events. And where there is a shortage of supply, the cost of that supply increases.
Then just into the start of 2022, as manufacturing (and hence, eventually, ‘retail’) discovered, there were ongoing problems with the supply of components and finished products. Car manufacturers couldn’t obtain the microprocessors on which all modern cars rely; telecoms companies found it difficult to obtain the new models of mobile ‘phones which they’d started to advertise, the list went on. Most of these supply problems were down to the fact that while the UK, Europe and the US had all re-started their economies after Covid, the one place where most of these items originated – China – hadn’t. The manufacturing centre of the world was still regularly shutting-down vast cities for enforced lockdowns (and as we’ve seen in recent weeks, is still doing so, despite growing popular resentment) resulting in severe drops in output. There’s also the little matter of Britain being in the somewhat unique position of being one of the few major industrial nations which has created new administrative barriers to incoming and outgoing trade; so, manufacturers and retailers realised that what products they could source from abroad were held up at the ports while the importers and Customs officials tried to work through paperwork that none of them understood. And where there is a shortage of supply, the cost of that supply increases.
And then the brown and smelly stuff really hit the fan: Russia invaded Ukraine. Ignoring the fact that this action has brought the ‘West’ closer to all-out war with the Russians than at any time since the Cuban missile crisis in 1962, the immediate effect was to create the ’Energy Crisis’. All of Europe (and yes, that does include us here) realised that it relied to varying, but significant, degrees on the supply of gas and petroleum products from Russia. As did the Russians. The problem is that while they can find other people to buy the stuff from them, it’s much more difficult for us to find another convenient replacement supplier. I think we already know what happens when there’s a shortage of supply. In this instance the first people to realise the effect were the wholesale energy generators and distributors: the distributors immediately realised that in many cases they were contractually committed to selling at controlled or fixed prices. Most of those companies declared themselves bust pretty quickly, before their liabilities could crystalise. The bigger ones who took over the supply contracts instantly warned that the cost of gas and electricity would rocket in the latter part of 2022. Some were also quick to point out that there may be actual cuts in supply, regardless of price; as we’ve so-far had a very mild autumn and winter this hasn’t happened – yet – but a very serious risk remains. Meanwhile, we all suffer from ongoing high petrol and (particularly-) Diesel prices, with supplies of the latter also at some risk of interruption.
At least while the Russian war was something which has badly affected our economic and business climate during this year – in common with most ‘western’ countries – it was beyond the control of the government (here, or anywhere else other than Moscow). The same can’t be said of the last (hopefully) of the catalogue of disasters during 2022. We’re talking about the 100% home-grown, self-inflicted damage caused by the UK government in a very short time during the autumn. According to many independent economic analysts the damage caused by Ms Truss and her sidekick Chancellor Kwarteng (had you already forgotten his name as well?) in a record-breaking period of only around six weeks cost the UK economy somewhere between £30 Billion and £50 Billion. As we now know, we’ll all be paying for it for years to come, while businesses and individuals face the highest interest rates since 2008 and the highest rate of price inflation since the 1980s.
Over the years I used to spend countless hours after each Chancellor’s ’Budget’ or ’Economic Statement” poring through the minutiae ’of Treasury press releases to try and find what they were really doing; the stuff that didn’t make the headlines on the day, often because the headline-writers didn’t understand it. This year I’ve given up bothering. The main reason being that each Chancellor announces measures that are supposed to come into effect six, sometimes twelve, months in advance; what we’ve seen this year is that a huge proportion of these are now eliminated or reversed by yet another ‘statement’ (and these days apparently another Chancellor) a few months or even just weeks later.
It’s difficult to think of anyone who predicted any of the key economic or financial events of 2022 with any degree of accuracy at the end of last year, and only a fool would try to do so now for 2023. The closest I’ll risk getting into that position is to predict that sometime, possibly quite early into the New Year, there’ll be another ‘Economic Statement’, even possibly by yet another Chancellor. And I suppose it’s quite safe to predict that there’s not likely to be much, if any, good news.
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