From war, inflation and strikes to falling markets, 2022 was a year to forget for many. This year offers a fresh start, but what trends can we expect? The Sunday Times business team spoke to some leading UK bosses to find out.
The big picture
Inflation and interest rate rises have been the dominant economic forces in 2022. Now the big question is whether monetary tightening is close to its peak — and what it means for companies’ ability to invest and act.
“We think inflation is likely to have peaked in the fourth quarter, the Bank rate will reach 4 per cent in early 2023 and GDP will contract by about 1 per cent next year,” said Charlie Nunn, head of Lloyds Banking Group. He predicts a “modest recovery” will not arrive until 2024.
Peter Harrison, chief executive of investment giant Schroders, said: “Central banks are no longer the economic rescue crew; they’re actively sacrificing growth in their battle to quell inflation.” Borrowing will be more expensive and inflation will stay high. “This is a return to normality, where asset prices are no longer buoyed by oceans of liquidity, and where cash can earn positive nominal interest.”
Robert Forrester, boss of car dealer Vertu Motors, said: “We will see inflation decreasing, but it will remain above long-term levels,”
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Warren East, who stepped down as chief executive of jet engine-maker Rolls-Royce last week, said: “Economic activity will continue, [but] progress will be patchy and bumpy at times.”
Andy Bird, boss of publisher Pearson, said: “There’s a big question about if the US goes into recession midway through this year, what impact that will have globally. It’s a unique condition for companies: they’re exiting from the pandemic and rolling straight into a recession.”
Meanwhile, one of Britain’s top hedge fund managers has said that inflation will rise again and Britain could see another debt crisis similar to the one triggered by 2022’s infamous mini-budget.
Crispin Odey, who made a fortune taking short positions in British banks ahead of the 2008 financial crisis, said: “There could be another run on gilts, but not for a while.”
He added: “I think inflation will fall to around 6 per cent but then start rising again. There may be another crisis.”
Consumer spending
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Nunn said that there were “serious challenges for lower-income households who need significant support”. Energy bills are set to rise even further come April. But he added: “I am encouraged that we see some resilience in households’ spending and businesses overall.”
Alex Mahon, head of Channel 4, said “live entertainment, travel, theatre, sport and fun will play a larger part in consumers’ lives. We will keep streaming non-stop — from the sofa, at the bus stop, in the bath and under the desk in meetings.”
Energy
East said: “Energy will continue to become more of an issue as economic growth drives more demand, geopolitics heightens energy security concerns, more sectors seek to electrify, and combating climate change becomes ever more relevant in decision-making.”
Sam Laidlaw, executive chairman of oil and gas firm Neptune Energy, said: “With a number of significant investment decisions due in 2023, investors will seek reassurance that the extraordinary 75 per cent tax rate will be limited in duration and will only apply when we have extraordinarily high prices.”
He added: “There will remain a shortage of gas across Europe, even if the war in Ukraine ends. The North Sea still provides half the country’s gas needs and, with its infrastructure and resources, has much to offer, yet investment has stalled.”
Markets
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The FTSE-100 ended last year almost where it started. But Harrison insisted there were opportunities in the “new old world” of higher interest rates. “Bonds are attractive again for their yields, not merely as safe havens,” he said. “Meanwhile, stock markets tend to reach a floor before recessions end.”
Cyrus Kapadia, chief executive of Lazard’s UK financial advisory arm said: “Financial markets could rebound more quickly than some expect. Despite the current economic slowdown, balance sheets remain relatively strong. FTSE 100 and FTSE 250 earnings estimates have relatively held up in 2022 and financial services firms stand to benefit from a shift in central-bank tightening actions.”
Consolidation
Kapadia said: “Strong firms will seek acquisitions to help growth, restructuring transactions will be required by companies needing to bolster balance sheets and we may also see a pick-up in deals focused on corporate spin-offs as businesses concentrate on their core activities.”
Bird said: “I think you’re going to see consolidation in some parts of the tech industry.” Mahon also predicted mergers: “Some streaming players will collapse, others will combine with consolidation as the advertising market drives businesses to scale.
Reasons to be cheerful
Nunn concluded: “A more rapid recovery could materialise, led by energy prices falling faster, China recovering quickly creating global demand and stronger spending by higher income households based on savings they built up during the pandemic.”
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Co-op chief executive Shirine Khoury-Haq said: “2023 will be a very tough year but it can also be the year where necessity breeds invention to create both hope and prosperity for the future.”
