UK Recession Calls Rejected by Economist Savouri

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Warnings that Britain is heading into recession thanks to a new energy shock are being challenged by Dr Savvas Savouri.

The veteran economist and market strategist says in a missive out Tuesday that the UK simply does not display the conditions normally associated with a downturn.

"One cannot escape the cacophony of claims that a calamitous UK Government will combine with a Gulf-driven spike in energy prices, to cascade the UK economy into recession," he says in an email note out Tuesday.

Savouri says his view is not based on optimism for optimism’s sake, but on experience of what genuine recessions look and feel like.

"I am far from an eternal economic optimist, but rather a persistent realist."

Savouri's intervention carries weight given his long background in economics and markets, having lectured at Oxford and the London School of Economics and held roles at Commerzbank, Lazard and Toscafund before becoming Managing Partner at QuantMetriks.

He pushes back against what he sees as an increasingly lazy consensus that a weak government and higher Gulf-driven energy prices must inevitably push the UK into contraction.

He points to the UK’s deep downturns of the early 1970s, early 1980s, late 1980s and the financial crisis of 2008 as benchmarks for what a true recessionary collapse entails, arguing the current backdrop does not compare.

His central point is that recessions do not arrive by magic just because sentiment is poor or energy prices rise.

"For a recession to hit a national economy, either its banks must misfire or its labour market must fail. There is little reason to see either happening in the UK."

That is the heart of his argument.

Savouri says UK banks, businesses and households enter this period with sounder balance sheets and more robust debt structures than in previous episodes of genuine stress, leaving the economy far less exposed to the sort of systemic shock that typically produces recession.

"UK banks, businesses and households in aggregate enjoy good balance sheets and solid debt covenants."

He explains that if energy-related recession risks do exist, they sit more clearly elsewhere.

"If recession risks exist, they lie far more clearly in energy-intensive but energy-poor industrial powers such as Japan, South Korea and Taiwan, and within Europe, Italy and Germany."

That comparison matters because it reframes the UK as relatively less vulnerable to the latest oil and gas shock than some of the economies now being discussed less aggressively by forecasters.

Savouri's broader complaint is that too many commentators are treating today's energy spike as though it must mechanically reproduce the economic pain of past crises.

"To be clear, even though the black stuff has once again seen its price spike, the UK economy is not even close to descending into the dark days of The Black Stuff."

"For those keen to get a dramatic understanding of the '79-84 UK economic COLLAPSE, I would recommend watching Alan Bleasdale’s quite brilliant Boys from the Blackstuff. That seminal five-part series from 1982 was commissioned following the critical & audience acclaim received by The Black Stuff, a Play for Today from 1980," he adds.