The UK economy is trapped in “a doom loop” and there is “some pretty big pain” to come, corporate travel leaders were warned on Monday.
Addressing the Business Travel Association (BTA) conference in Munich, Simon French – chief economist at analyst Panmure Liberum – noted global unemployment is “at a low point despite all the trade frictions” and interest rates have come down with “still quite a lot of headroom” for further reductions.
The post-pandemic squeeze on credit had “bottomed out 18 months ago, allowing businesses to be more confident about investment”, he said, asking: “So why does it appear we’re in this ‘doom loop’?”
French suggested the reason is the $280 trillion in debt in the world economy, saying: “History tells us when debt gets too high, we need pretty significant remedial action.”
He warned: “There is some pretty big pain to come.”
French noted repeated dips and recoveries in economic confidence since the pandemic, with dips followed by economic rebounds when Russia invaded Ukraine in February 2022, Hamas launched its attack on Israel in October 2023, and President Trump made his tariffs announcement in April this year.
But he said: “Headline inflation in the US is tracking back up. The average tariff on goods is 19.7%, a level last seen in 1931, and people are starting to worry the US will see a significant bounce in inflation.
“The cost of long-term debt remains high and infrastructure projects are becoming very expensive.”
He suggested the cost of pensions needed to be addressed, noting: “Pensions schemes were designed for two years of retirement on average, and now the average retirement is 26 years.”
French told the BTA: “The real growth in the world economy is in India and China which are on totally different paths to the US and Europe.”
He noted productivity in developed economies in general, and in the UK in particular, had grown “at a rate of about 2% a year” until the financial crisis of 2007-09 when the growth rate “broke” and cited several theories as to why, including the suggestion that productivity has continued to improve but this is not captured in the data.
However, French said: “The most likely reason is we have under-invested probably since the 1980s.”
He pointed out: “We have not constructed a reservoir in the UK in 35 years, and the UK used to lead the world on nuclear power. Now we have very expensive water and electricity.”