Supplement 18 Feb 24 – Recession? What Recession?

Feb 18, 2024

“Recession is when a neighbour loses his job. Depression is when you lose yours.” – Ronald Reagan, US president and actor.


Before we begin – Rod Turner and I are running a FREE online Partners in Property PIP Taster Event on Monday 26th February at 7pm. We are talking about the Property Puzzle in 2024 – taking on a whole number of topics including stacking deals in the current environment, rents, house prices, financing arrangements, and the likely impact of the upcoming general election – amongst a number of other topics! It is 90 minutes long and free to air, won’t be recorded, and won’t be repeated – sign up, gratis, at 


Now down to business. If there was a song to accompany the Supplement every week (I don’t imagine much demand for that, but I might be surprised, let me know what genre you’d set the Supplement to, please!) – then this week’s would be a parody Weird Al Yankovic-style version of Sinitta’s 1986 hit “So Macho”, rebadged as “So Macro”. Don’t worry, Propenomix is years away from its first tilt at a charity Xmas Number One. Plus, only a very small handful of people would appreciate the humour, I’m sure. The point is – this week we need to put full focus on the macro picture, because that “R” word has finally come home to roost. For a bit. Probably. RECESSION…….


It’s no mistake that I’ve used the Reagan quote above, because this already looks to have failed that first acid test. What I need to do, this week, is summarise in detail all the latest threads that make up this complex beast of an economy – then, as usual, fill you in on the bits that the rest are omitting, don’t understand, or leave out because they are lazy – and bring it all back together in order for us all to keep informed, and of course, calm and carrying on (spoiler alert).


For completeness, we will have to start at the beginning. What is a recession? Defined as two quarters in a row where an economy shrinks. So, this already raises a few problems – this sort of recession – current estimates of -0.1% in Q3 2023 and -0.3% in Q4 2023 – is technically meeting that definition. A drop of 25% in GDP in one quarter and then an increase of 33.33% (that would put the economy back in the same shape) would NOT be a recession, although it would be a complete crisis of course – such as a pandemic……


I’m reminded this week that the pandemic shadows are also not yet banished, and there will be more on that as we go through. Let’s start with the key macro indicators – in more detail than usual – and the big 4 this week really pick themselves: Unemployment (and the employment market in general), Inflation (and yes, I will be looking quite broadly as always), GDP (and I will use some artistic licence to remember the other measures, and examining the case made this week by some bears that the recession has been ongoing for 2+ years already), and – you know it – the bond yields, because they’ve ended the week on that psychological point and also jumped about a bit.


So – the labour market. Unemployment went back down to 3.8% in December. Perhaps not surprising, I hear you say – there’s always more jobs around Christmas-time, right? Well, firstly remember that the ONS seasonally adjust these figures, so expect that to be ironed out. Let’s also remember we were up at 4.3% at the May – July quarter in 2023, so these figures are considerably better. Almost as though the economy has done OK in the face of Covid…….


31,000 more people were on UK payrolls in December compared to November ‘23 – we also get treated – when we go to the source data – to provisional estimates for January ‘24 which are an extra 48k on payrolls. This doesn’t smell very recessionary as yet…..however, we still have a record percentage “economically inactive” – mostly due to long-term sick changes since Covid, as discussed before – and so this keeps the unemployment number down. The employment number – the real yardstick – remains at 75%. However – and let me show part of my hand for this week, here – there are a lot more people in the sample, who seem to have been added in all in one month or in one quarter (perhaps due to reporting of immigration figures and/or processed asylum claims), so some larger than usual swings have been happening across the board, it seems.


Vacancies fell again (19 periods in a row now since the peak) but are still above pre-covid levels. This is also the smallest percentage fall in vacancies for 18 months. The headline figure of wage growth dropped below 6% (5.8% print) – but, as so often, the headline figure is the wrong one. That one includes bonuses, and the base year data is polluted by one-off Covid bonuses – the better, purer figure at the moment is the wage growth without bonuses – which remains well above a comfortable level for the rate-setters, at 6.2% year-on-year. 


Real pay adjusted by CPIH, the ONS’s preferred methodology, was up 1.8% year-on-year – this can never be seen as a bad sign. One definite conclusion is that we still need more people back in the labour market who are on long-term sick, and to solve that problem we need to solve the healthcare strikes, which have also (by some pretty disgusting political posturing) been blamed for the recession. Felt very Trussian, that one. 


So – precisely zero that is indicative of a “proper” recession in those figures. There have been recent data integrity issues around unemployment data as well, and the “Labour Force Survey” usage (or not) – the LFS. This is as exciting as it gets at the ONS folks. However – let’s crack on, intrepid Propenomix explorers that we are!


Inflation. My middle name. My magnum opus. My meal ticket. My nemesis. Right, let’s get on with it. It was sideways in the headline number – CPI. You know by now I prefer to look at the performance compared to expectations, and the market consensus was 4.2%. I was with consensus – I expected a print above 4%, but I did warn of strange base year effects. My banker came in (more on that later) and it still didn’t increase, but such are the vagaries of the numbers.


CPI is great – gets all the headlines, important for some leases – but it really is only 10% of the picture. Core has been a favoured soapbox of mine, and that stayed above 5%, printing 5.1% again, another sideways move. The month-on-months were much more interesting than the annuals, though. Both CPI and core collapsed on a monthly basis (now that looks MUCH more recessionary, as it goes) by 0.6% and 0.9% respectively. That’s a big shift. Fear not too much though – input prices of goods collapsed compared to 12 months ago, when energy was at such a high level (April’s price cap has been set, as an aside here – a 15% drop coming in household prices which will help households significantly, and keep inflation down in April, nearly guaranteed. Nearly!). The same happened to CPI – exactly the same – in January 2023, and it also dropped in January 2022, on a month-on-month basis – so you might just put that bit down to the “January Sales”, frankly, because these are not seasonally adjusted figures, but raw data.


The exact same was true for core in January 23, and January 22 as well. Freakishly similar patterns. No real conclusion to draw there, though, although to be fair I will provide the figure for the last 6 months core inflation – annualised – and it is a mere 0.3%. That will keep a few rate setters a LOT happier (although they will not like the direction of wages as above). 


So, that’s inflation – right? Wrong. You know I always love a bit of services inflation – massively important, massively underrepresented in broader analysis. Mentioned in passing if you are lucky, in spite of being 47% of the component of CPI. Services inflation printed upwards again, to 6.5% (last 3 months – 6.3, 6.4, 6.5) – this is not as yet under control under any set of circumstances, and since wage costs of minimum wage staff who are full time are set to go up over 11.5% in just 3 months’ time, this is a cornerstone of why I see no respite for CPI just yet. 


RPI dipped under 5, for those who still have that in their leases – just – 4.9%. Again below consensus though. Rent inflation, as measured by the ONS (remember, they have a sample of 500k+ rental homes, so this is a very realistic figure, taking into account natural turnover around the 22% mark, and around 78% of existing tenancies) hit 6.5%, it’s equal high spot in this cycle. That trend down isn’t happening yet on ONS numbers.


Energy inflation was down around 15% for the year – so, once we hit April’s number (or perhaps July’s), this cycle has truly worked its way out (and, back to the musical theme, I suspect I would be invoking Yazz and the Plastic Population’s “The only way is up” after that point). Food inflation continued to calm down but still prints nearly 7% higher over the year (we had a couple of very uncomfortable prints at 19% last year, but still the wrong direction and not looking normalized as yet). Inflation expectations (as measured by survey) came back to 3.9% after being down at 3.5% last month – and the public look pretty savvy to me here. The greatest trick the devil ever pulled – freezing the tax thresholds – looks to be well understood by gen pop here, that’s very close to my expectation of inflation over the next 12 months.


So – the comprehensive inflation roundup is done. In a recession, we’d expect (not immediately, but in some short order) a fair collapse in inflation, because we’d expect a collapse in demand. Our friends here would be the sentiment indicators, and, more accurately, the PMI numbers – which, as discussed last week, look particularly healthy. Another lack of tick in the recession box.


Now to growth. GDP – the ultimate arbiter of whether we are in a recession or not. We are, according to the current estimates. GDP gets played with and is sometimes revised a year or more in arrears. It would be Q3 one would have particular eyes on, because at only -0.1%, a very small revision upwards erases the recession from the history books (assuming Q1 ‘24 is a growth one, which currently looks to be the case, although we are only halfway through in real time of course). -0.3% as stated for the last quarter of ‘23. For some colour, two bullets from the full ONS report are appropriate here:


“This release includes revisions to periods Quarter 1 (Jan to Mar) to Quarter 3 (July to Sept) 2023, where growth in Quarter 1 2023 has been revised down by 0.1 percentage points, while total GDP in Quarter 2 (Apr to June) and Quarter 3 2023 are unrevised.”


And perhaps even more illuminating:


“Historically, the absolute average revision between the initial quarterly GDP estimate and the estimate three years later is 0.2 percentage points, when more detailed information is available through the comprehensive annual supply and use balancing process.”


So, to be clear, that revision might be up or down, but it does tend to change. Frustrating, but we need something to work with, so it makes sense to do as much as possible in the timescale given and then revise when the bigger picture is known. Less helpful when you consider we might be in an official recession or not.


0.1% up for the year – the 2023 official current print – is the worst year since 2020, and excluding 2020, the worst year since 2009. Stagflation in a bottle, simple as that. 


There was some further debate this week though amongst the more bearish commentators, who tend to make things up as they go along. The sort who have predicted 14 of the last 0 recessions. The sort who say the market is going to “crash” and bubbles (that there’s precisely zero case for) are going to “burst”. Clickbaiters. Mass Clickbaiters, frankly. 


They pointed to the GDP per capita figures. Now – let me say first of all. I’m a big fan of using GDP per capita figures rather than just GDP. However, this is in a broader context that GDP in itself is not a great metric for measuring progress in the economy. It suffers from all sorts of issues – for example, how to guarantee a way to grow GDP? Just have a war and borrow loads of money. Progress? Eh? 


GDP per cap has indeed suffered. Indeed, we would have been in technical recession long before had we not imported those 1.3m people in the course of the past 2 reporting years when it comes to net migration. Overall production has just about held on, but it has taken more people to do it – basically. The GDP per cap figures point to an easy tapestry of 2+ years in the slums.


Ha, they say. Gotcha! Hold your horses, I say. You will note that I prefer (and so do the boffins at the ONS) the metric of RHDI, that I have mentioned before. Real Household Disposable Income. Real – adjusted for inflation. Tick. Household – the very same households that we house in our rental sector. Tick. Disposable – so, in spite of all the headlines and the moaning – championed by myself, but that’s just being a bit British about the whole thing, isn’t it – the taxman has had their slice. Tick. Income – yep, that’s what we need to worry about. Far too much time is spent on the inequality argument discussing wealth inequality, without proper context and without looking at where the largest wealth inequality truly exists in the world (Scandinavia, in case you are wondering – as I shatter the last remaining bones of any leftist tendencies you might harbour). Income is what we need to concentrate on, both economically and politically as it goes.


So – RHDI, like all fantastic statistics that tell a story, is both underreported in the broader media and slow to be delivered. That’s frustrating. We can’t update monthly, because it is only a quarterly publication (a travesty, in my view). It is this week’s image, just to give it the airtime it deserves. We only have data to September 2023, which was published in December. Nothing more until the end of March, I am afraid, officially – although the labour market reports do contain a bit more, as discussed above – the ONS are clear that the direction of travel of real incomes is currently upwards (which is great). 


I think this is a better indicator. The RHDI graph shows indeed an uncomfortable period – of 5 quarters, between Q3 2021 and Q3 2022 inclusive. You may well join me in the anecdotal conclusion that Q3 ‘22 was the peak of the cost of living crisis. People were too scared to turn on the heating. All sorts of negatives going on, which slowly started to improve. The graph certainly matches the narrative as I saw it happening in real time. Q4 ‘22 and Q2 ‘23 stand out as fairly excellent moments in repairing a lot of that damage. So, I’d argue that a more accurate representation would be a “Real Household Disposable Income” recession between/including Q3 ‘21 and Q3 ‘22, and a recovery starting from then. Much more accurate in my humble opinion.


Now take that case apart – well, there’s an easy and cheap shot. You can never trust one metric – even one as well thought out as RHDI. Or – so what. It still isn’t PROGRESS. Let me push back on that one – I’m not sure that everyone remembers just how much money was needed in terms of debt/QE to deal with the pandemic, but to not have had a significant downturn in the face of it is actually a fantastic result. It isn’t in our nature as humans to recognise that though, of course. No-one celebrates the car crash where you get away with a few broken ribs, rather than the one where you shuffle off your mortal coil – although we probably should. My argument would be that the outcome overall hasn’t been bad – definitely could have been better, definitely lined the pockets of a few scumbags – but nonetheless, not bad.


That only leaves one more macro area before drawing the tapestry completely to a close for this week. The bond yields. The order of play of the three very important releases for this week was as I’ve ordered them above – Tuesday Employment, Wednesday Inflation, Thursday GDP. The yields jumped on Tuesday’s news because of the labour market looking much stronger than expected, and those strong wage numbers as discussed – the implication being higher rates for longer. Then, Wednesday’s inflation below expectation gave up all of those gains. And then GDP – well, GDP did nothing at all. Absolutely nothing. The market had been expecting something like it, and decided it did very little to influence future rates.


I can get behind the first two moves very easily – and, time for my regular reminder, I am not a bond trader! Often the market moves in ways I find difficult to justify. The third one though – this strikes me as strange. Rates drop in recessions, right? Usually – although, again, not necessarily straight away. The next Bank of England governor (I am assuming, here, that Andrew Bailey holds hard, and also has seen off the biggest period of political pressure which was around the middle of 2023) is not elected until 2028, so whilst the “independent” central bank with its Governor selected by the Chancellor sometimes gets questioned, this doesn’t seem to be a political cycle where anyone will really be jockeying for position (this is very different to the US system where that’s absolutely up for grabs and thus you can Bank – sorry – on the Fed being a lot more politically sensitive than the BoE in 2024). Ergo – they should be able to do what is “right” between the nine people on the MPC. 


So, the market seems to me not to really believe this is much of a recession. That’s my takeaway. We ended the week at the top of my stated range, and just above that psychological point I’ve spoken of. 4.006%. Couldn’t get a lot closer to the big 4. Into my expansion vessel up to 4.25% that I’ve spoken of in recent weeks. Yields feel, for the 5 year, as high as they really should be getting right now but 10-20bps is not a lot, and might even make brief sense. 


Not many ticks in this recessionary box just yet, are there? One more point of order, then. It was the first time in a while I remember agreeing with Andrew Bailey – but the Governor spoke on Monday night at Loughborough university and spoke of a “shallow” downturn that was likely already over. I’m uncomfortable agreeing with him, although I suspect this is the stopped clock being right twice a day, this time round. 


Let’s put the final stitches into place, then. Rents still soaring. Wages still soaring, really. Affordability growing. Disposable income improving, and surely a massive uptick in RHDI guaranteed for April 2024 as enshrined wage rises kick in. Recession – what recession – jobs still in plentiful supply and employment figures healthy enough. 1.2% of people fewer than pre-pandemic are employed – but they are all on the sick list, and then some. 


A few more tidbits too. The cat seems to be out of the bag – the property market is reporting rude health. Nicking the key stats from the property Statto, Chris Watkin:


  • House Prices on Sale Agreed homes rise in Week 6 to £339/sq.ft (Jan ’24 to £331.35/sq.ft)
  • Listings for last week (Week 6) are 17% higher than 2024 YTD average
  • Gross sales for last week 20.3% higher the weekly YTD 2024 average (and 19.76% higher than the 2023 weekly average)
  • Last week’s net sales – 31.4% higher than the 2023 weekly average
  • Sale fall-throughs continue to be at record lows at 1 in 5 sales (4 in 10 in Q4 2022).

    There’s also speculation of tax cuts. The R word makes this, politically, a lot harder for Hunt. Some remain convinced of a Stamp Duty giveaway – I’m more sceptical, personally. A supposedly-pencilled-in 2% income tax cut has been shelved, we were told this week. I’m less concerned about the details – tax cut forecasting isn’t a sport I’m particularly interested in – I’d prefer tax rise forecasting, personally – but I prefer to react quickly to whatever does happen rather than to be too proactive on that front. 


Oh no – I’m more concerned about the inflationary implications of any cuts. Of course. Hunt was also under pressure to cut spending to deliver tax cuts, but again – this would now be political suicide. Cutting spending in a recession guarantees more of the same – simply because of the way GDP is calculated. Consumption is a massive part – and for that, you need positive consumers who are also happy to save a bit less (and instead, in Q4, they saved quite a lot more – which removes that money from the consumption side of the equation, and is yet one more good reason to use RHDI rather than GDP or GDP per cap), but the next largest part of GDP is – by a mile – government spending!


Cutting tax is inflationary because it increases RHDI yet further (if it is personal tax, of course). Hunt has made all the right moves so far, within the context of the game that he plays – the game that Truss and Kwarteng completely refused to play. Operating within the forecast and framework of the OBR (Office for Budgetary Responsibility, or my preferred, Office for the Bloody Ridiculous). To be clear, my position is that they are terrible forecasters especially in times of flux, BUT that’s the game and you need to play it to keep the international markets and the >1.5 trillion GBP of debt we owe to real people, institutions and nations (rather than to our own central bank – don’t go there) – and Hunt has played it with more skill than anyone. Even more money in the pocket is not needed right now – it is coming anyway. Patience is needed.


I’m actually, personally, cooling off on my extreme bullishness. I think this cycle will be more extended, but slope more steadily upwards. Having said that, I am sticking with my c. 4% house price rise this year – a.k.a keeping pace with inflation. Soon, it will start to outstrip inflation in my view – maybe in the second half of this year, but with the election to contend with, I expect the real (by real, I mean inflation adjusted!) increases to start post-election for real, whoever gets elected. As soon as that uncertainty is gone, it will be party time.


It remains, for now, one of the very best times to get stuck into the UK property market that I can remember. Just remember one more thing – this isn’t financial advice, it is simply reportage of what I am doing myself within my group of businesses. Attack is the best form of defence.


Congratulations as always for getting to the end – don’t forget the FREE Taster Evening on February 26th, you can register here: and Rod and I will delight you (ok, what do they say, don’t overpromise and underdeliver) – or at least briefly entertain you – with our respective takes on the current market and the challenges coming in 2024 – alongside, of course, some more detail on the opportunities. Until that event – and until next week’s article – Keep Calm and Carry On, of course!