FOC Economist


Baseline Across the recorded history of GDP, recessions – even those as significant as the Global Financial Crisis - tend to be minor aberrations in an otherwise upwards trajectory, invisible to the eye of someone studying the charts. Except for in 2020 that is. The fall in GDP in a single year wiped out all growth experienced in much of the previous 20 years.

Growth Domestic Product: Chained Volume Measures: Seasonally Adjusted £m





£ million



Q1 1977

Q1 1988

Q1 1999

Q1 2010

Q1 2021

Q1 1955

Q1 1966

Whereas the recovery after the pandemic has been a relatively sharp pendulum swing, the extent of public borrowing, supply chain disruption, resulting inflationary pressures (and subsequent monetary policy) have all since had a significant drag on the economy since.

For now, the post-GFC period of ultra-loose monetary policy of interest rates and quantitative easing, played out against a backdrop of increasing globalization and digitalization, is over.



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The supply chain shocks of the pandemic, as well as trade wars between major economic blocs, and more recently War in Europe have created inflationary pressures across the majority of advanced economies. While these factors have not been as transitory as first hoped, nor are they likely to be structurally impactful in their own right. Furthermore, central banks in the majority of advanced economies have been steadfast in their pursuit of bringing down inflation – even when faced with fears of a potential banking crisis in early 2023. One of the defining features of the last number of years has been the robustness and resilience of the labour market in the face of, firstly the pandemic and secondly, multiple waves or rate hikes; with the UK unemployment rate peaking at only 5.2% during the depths of the pandemic, and hovering at under 4% after 14 consecutive interest rate rises. This robustness has thus far avoided the ‘creative disruption’ – to quote Schumpeter - of a recession; and bolstered wage expectations, and subsequently wage growth – at least in absolute terms. In the medium-term, however, the UK’s productivity problem, which goes back to the Global Financial Crisis will weigh on not only the ability for wages to grow, but for the economy to grow at a rate that would enable better standards of living – particularly in an environment where the population also grows at a similar rate. This paper is concerned with structural trends, rather than the ebb and flow of the economy. Whilst the economic damage from COVID Brexit is high, there is no suggestion that this will be the next 60- year ‘Great Slump’ of the 1400s. However, to focus on the topic ‘du jour’ – while inflation is likely to come down in the short terrm, in the medium- and long- term, there are a number of longer term inflationary pressures with decarbonization and deglobalization in particular likely to have an impact on prices as a result of the energy transition and supply chain changes. What might change?

In the horizon to 2040, we should sensibly assume full recovery and at least one further recession between now and then (or two if we go by the 3000 year old assumption of a ‘shemitah’ - seven year cycle). However, the scope for ‘external shocks’, if not elevated, does nevertheless raise the potential for periods of economic uncertainty. A long-term depressed growth period as a result of prolonged tight monetary policy, continued lagging productivvity or reduced trade as a result of Brexit would not only impact the economic wellbeing of the population but would have a proportionate impact on our cities, either in the form of reduced development, or the form of substandard development, built to the economic case of the day. Both will have an enduring legacy on the city of 2040. However, there are other economic factors, which are more directional in nature. For instance, while our population is ageing and the impacts of low inflation, and changes to pensions will weigh on large numbers of the elderly population; the divide between the asset-rich old (, defined benefit pensions) and asset-poor young (less household income, softening incomes) feels likely to increase.



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A pension crisis is looming for those currently in work, and as the population continues to age, the rate of wealth recycling will slow down. The power in 2040 will sit with the old and not the young, and we expect the market to shape our cities around this. Over history we observe periods of rapid economic change driven by the introduction of new foundational technologies. The change this time comes from the exponential adoption of the internet in business practices, combined with new artificial intelligence technologies and biotech. Over time these could radically reshape our economy – and fundamentally alter the productivity problem. By 2040 many forecasters predict that c.50% of existing roles will become at high risk of automation. This will impact both the working and professional classes – and for many will increase the risk of perpetual unemployment. In the same way that industry change marked the birth of factories and then offices, it is quite conceivable that this new industrial change will bring with it new forms of real estate better designed to address the changed nature of the activities that they house. Perhaps more fundamentally, the metrics against which we assess the economy are under pressure to change. The use of GDP as a measure of growth is so universally accepted, that it’s hard to believe that it was formulated less than a century ago – as a solution to understanding the US’ recovery from the Great Depression. Yet as a number of economists have pointed out, including Joseph Stiglitz and Simon Kuznets, GDP focuses on the amount of growth rather than the quality of that growth. The World Economic Forum’s Inclusive Development Index offers one route forward for measuring national success – with inclusivity, happiness and sustainability taken into consideration alongside other measures of growth. With increased focus on Environmental and Social value across economic stakeholders, such measures are likely to only become more considered – and with more measurement, comes more capacity for change.

Takeaways » Sluggish growth won’t last forever, but its impact on development will carry a legacy. » In the short-term inflation will come down but deglobalization and decarbonization are long-term inflationary pressures. » A pensions crisis created by sustained low interest rates post-GFC will have an enduring impact. » Wealth will continue to be redistributed towards those with assets, exacerbating existing inequalities. » Foundation technology will continue to reshape our economy. » Role automation will be a feature of the next 20 years and will change workforce composition. » Expect new forms of real estate to respond to new economic activities and other forms to become obsolete. » Societal shifts in focus on environmental and social value will re-shape economic focus. Black Swan Risks » Rapid automation creates joblessness » Rapid new growth driven by new technologies.



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