Economic Downturns, Famously Known as Bear Markets, Are Common Occurrences according to Hamish McRae
Time to take a breather, and this holiday gives us just that chance. We all need a break from the madness, 'cause let's face it— economically and financially speaking, this ain't no joyful Eastertide.
So let's focus on the knowns or at least the likelys happening in the weeks ahead. Here are six things to keep in mind.
First off, the chaos won't last forever. Can't go on like this. The costs for everyone are too steep. Expect a series of trade dispute settlements triggered by Donald Trump in the coming weeks. These may not be the best, and they might not stick, but the level of uncertainty won't endure beyond the summer.
Second, the global business community is tough as nails. Witness how Russian enterprises have found ways around the sanctions imposed on them. Russia's still exporting its goods, raw materials, and importing stuff it needs. Disruptions have increased costs and prices, but they haven't stopped trade.
Third, there's gonna be more inflation worldwide— partly due to tariffs driving up prices, but also because the political mood in the US is leaning toward inflation. The Prez has slammed Jerome Powell, the Federal Reserve head, for not slashing interest rates quick enough, and you know what happens when there's too much cash floating around. The time lags are unpredictable, but if central banks print tons of cash, you can bet your bottom dollar that prices will eventually rise. If the US sees a rebound in inflation, that pressure'll come our way too. In any case, we've got our own inflation recipe brewing, and the Bank of England anticipates the Consumer Prices Index climbing well over 3% by Fall.
Next, we know a thing or two about bear markets, defined as a 20% drop or more from the peak.
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The US bear market and related chaos hit us directly and indirectly. Directly 'cause many of us hold American stocks, and indirectly 'cause UK markets were pulled down too.
Every bear market is unique, but looking back at the past century in the US, on average they persist for about nine months with a decline of 35%. That suggests if what's happening in the US is more or less typical, we'll see further drops in equity prices, but by the end of this year we should be looking for a recovery.
How might that affect UK markets? Well, we've seen how US turmoil spiraled the FTSE 100, which peaked at just over 8,900 in inter-day trading last month. We're back to where we were at the start of the year. UK stocks may offer better value than US ones, but if there are more prolonged slumps in the US, we'd be foolish not to anticipate a beating too.
Fifth, does all this mean the UK slides into a serious economic slowdown, maybe even a recession? The forecasts for the US are all over the place, with some economists suggesting recession, others merely slow growth.
As far as we're concerned, the consensus seems to be one of stagnation rather than a nosedive, with tax increases on businesses mattering more than Trump's antics across the pond.
And it seems that service economies are more resilient to economic shocks, compared to manufacturing-dependent ones. The UK depends more on services than any other major economy, and not just domestic services. Service exports accounted for 56% of exports in 2023— I can't find another country where the proportion is that high.
A final thought. There's always the possibility this could lead to an economic crackup, akin to the banking crash of 2008-9 or the pandemic. But it's equally likely this is a pause in the cycle.
Common sense will prevail, and growth and trade will dust themselves off and hop back on the horse next year.
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Compare the best investing account for you ### Enrichment Data: Inflation Outlook in the UK: - Elevated Inflation Expectations: Despite a recent decline in UK inflation to 2.6% in March 2025, expectations suggest that inflation could rise again, potentially peaking at 3.6% by Autumn 2025 due to increased costs of household bills and external trade pressures[3][4]. - Global Economic Fragility: The ongoing trade tensions, including tariff wars, add uncertainty and could further increase inflationary pressures. This risk is compounded by potential economic instability and the impacts of global trade policies[4][5].
First, the ongoing chaos in the financial markets might encourage some investors to reconsider their investments in US tech stocks, given the uncertainty and potential for further drops. Second, despite the economic unpredictability, the global business community remains resilient, as evidenced by Russian enterprises finding ways around sanctions to continue exporting and importing goods. Third, a wave of inflation is expected worldwide due to the political climate in the US and its potential impact on central bank policies and interest rates. Fourth, the banking sector will likely face increased scrutiny and potential regulatory changes, as the US bear market and its global ramifications reveal areas of weakness in the system. Fifth, the housing market may experience delays or lags in mortgage approvals and transactions, particularly in regions heavily dependent on finance and personal-finance industries. Sixth, the economic slowdown in the US may lead to a decrease in UK exports, as demand for goods and services from British companies dwindles, causing a strain on the country's economic growth.
