Our investment outlook for 2020
- 16 December 2019
- 10 minutes
Recession in 2020?
In a November 2019 roundtable, Marcus Brookes, Keith Wade and Jon Wingent took part in a discussion led by David Ryder in which the outlook for 2020 was investigated. In this extract, we consider what could cause a UK recession in 2020 and how to prepare for it.
DR: Looking to the year ahead, do you foresee a recession in the UK?
KW: I think there could be a recession in the UK if we had a hard Brexit without an extension. The sudden change in trade, regulation and simple logistics of imports and exports would make life difficult over the subsequent year or so. The other potential cause of a recession as I see it, would be the election of a very radical government. The imposition of one-off taxes on large companies, higher ongoing taxes, higher public spending and higher borrowing could be very destabilising for the economy and financial system.
An environment like that could lead to lower confidence in the future of the UK economy, with investments being pulled from the UK. That would push the value of the pound down, making imports more expensive at the same time that corporate sales would fall. In other words, you could end up with higher inflation coinciding with a shrinking economy. The Bank of England would be left having to choose between trying to control inflation or stimulating economic growth.
There are lots of “ifs” and “buts” around that. But some of the policies that could come in could have quite a big effect on the economy and could hit businesses quite strongly. Regardless of who wins the election, all the parties have pledged to increase public spending substantially. Providing that can be kept under control, it could have a positive effect on economic growth.
DR: Marcus, what’s your outlook for the UK economy?
MB: It looks to me as though the UK is one of the slower growth areas in the world and therefore, a hard Brexit or a raft of radical economic policies could really hinder the UK’s economic progress.
But the global backdrop is OK. Geographically, the UK is an island but economically it isn’t. So while the global economy is doing reasonably well, I wouldn’t expect the implications of a downturn to last too long.
Also, general expectations of growth in the UK economy have been limited by uncertainty over Brexit. This has also kept the value of the pound low relative to other currencies while stifling asset price rises. This presents a potential opportunity for things to improve on the back of a resolution to Brexit, for example.
Don’t get me wrong, stock prices and economic growth have been continuing for a very long time without a major downturn. So if a positive outcome were to transpire, it could be a year or two in length. But I think the most likely of the worst outcomes we currently face would be an economic slowdown that would be unpleasant but not as dramatically painful as the financial crisis a decade ago.
DR: What is the feeling among clients about a potential recession?
JW: I don’t find that clients generally ask about a recession. I think it’s more that they are presented with information that there might be one on the way.
Of greater concern are things such as “what are the implications of a downturn on my pension?”, “is my job safe?” or “is public healthcare under threat”? So the National Health Service is being used as a political chess piece once again.
Generally speaking, though, consumers are in a fairly upbeat mood. They continue to spend money, while investment by businesses has fallen. So the worries seem to be more pronounced in the business community than among our clients.
Round table attendee biographies
David Ryder, Senior Investment Writer and Analyst
Schroders Personal Wealth
David has been leading the production of investment commentary at Schroders Personal Wealth (and before that for Lloyds Private Wealth) for more than four years. His 25 years of experience include publishing, broadcasting and journalism across a range of financial and investment topics.
Marcus Brookes, Chief Investment Officer
Schroders Personal Wealth
Prior to his role in Schroders Personal Wealth, Marcus was Head of Multi-Manager at Schroders from 2013 with responsibility for the Schroders multi-manager team and investment process. Marcus has over 25 years’ experience within investment management, specialising in manager selection and asset allocation.
Jon Wingent, Head of Investment Specialists
Schroders Personal Wealth
Jon Wingent has been Head of Investment Specialists since September 2016. Jon heads the investment specialist which supports colleagues and clients with subject matter expertise on investment related matters. Before joining us, Jon was an investment director at Close Brothers Asset Management. He has 17 years’ experience in the investment management industry.
Keith Wade, Chief Economist
Keith is responsible for the economics team and the Schroders house view of the world economy. He is a member of the Group Asset Allocation Committee. He joined Schroders in 1988, before which he spent four years as a research officer at London Business School.
Any views expressed are our in-house views as at the time of publishing.
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