FOC Economist

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.

CITY SHAPER ECONOMY

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Cushman & Wakefiled | Future of Cities |