If the UK’s the only G7 economy to shrink, where does that leave entrepreneurs?
In late January, the International Monetary Fund (IMF) released its global growth predictions for 2023. For most of the world’s biggest economies, the picture looks much better than in late 2022 when a global recession seemed inevitable. The UK is the one notable exception.
Thanks to the instability caused by then Prime Minister Liz Truss and Chancellor Kwazi Kwarteng’s unprecedented tax cut announcements, the IMF predicts that the UK economy is set to shrink 0.6% in 2023. That’s 0.9 percentage points than the same organisation predicted would be the case just three months earlier. Perhaps even more ignominiously, the country’s recession is set to be even worse than that faced by sanction-hit Russia.
If the IMF’s predictions turn out to be accurate, there will likely be severe consequences for everyone, including entrepreneurs. The fact that the recession is set to hit in the midst of a major cost-of-living crisis means that those consequences will be felt even more sharply. Even in the midst of those challenges, however, there will still be opportunities for entrepreneurs to grow and scale their businesses.
A history of poor growth
One reason to feel some level of optimism about the ongoing ability of UK entrepreneurs to achieve growth in the midst of a recession is the fact that they’ve long operated in a low-growth environment.
According to World Bank figures, the UK economy has struggled to achieve growth of above much more than three percent every year since 2000. In fact, since 2011 it’s only broken through that mark twice. The first was in 2014 when the country achieved 3.2% growth thanks to a combination of expansion in both production and services and household spending as well as strong export performance. The second was in 2021 and was almost entirely the result of a post-COVID-19 bounceback. In 2020, the economy shrank 11%, meaning that 2021’s 7.5% recovery wasn’t enough to bring the economy back to pre-pandemic levels.
Despite those challenges, some remarkable and successful startups have been founded in that time. The likes of Deliveroo, GymShark, and What3Words were all founded in the years after 2011 when growth was particularly slow. It is, in other words, far from impossible to build and scale a successful business in a low-growth environment. The same can be true of recessionary periods. The aftermath of the 2008 financial crisis, for instance, saw the founding of world-changing startups such as WhatsApp, Airbnb, and Slack.
The ability to identify opportunities despite the prevailing economic circumstances is, in many ways, what separates an entrepreneur from a business owner.
Advocating for change
While UK entrepreneurs should, of course, do everything they can to identify and grab hold of those opportunities, the coming recession shows that they should also be advocating for change.
The fact that the UK is the only G7 economy set to slip into recession in 2023 shows how much of the economic decline is a result of actions taken by those in power. While entrepreneurs can’t set policy themselves, they can take collective action to agitate and put pressure on officials at every level of government to make conditions easier for entrepreneurs, thereby kickstarting a return for growth. That means, for example, making it as easy as possible to export to the country’s nearest and biggest trading partners, particularly in the European Union.
But entrepreneurs can also advocate for change by providing mutual support to ensure that failure rates are lower and that businesses are better positioned for accelerated scaling when conditions are right. At EO, we believe that providing this kind of support is fundamental to a healthy entrepreneurial ecosystem especially in economically turbulent times.
In the long run, both have the potential to make significant improvements to the country’s entrepreneurial ecosystem.
Stay alert, don’t panic, use the available resources
Ultimately then, while it’s obviously important for UK entrepreneurs to be aware of the recessionary environment and adapt accordingly, they shouldn’t panic. With the right support and resources, they can make it through a recession intact. And if they happen to spot an opportunity or gap in the market, they may even be able to grow and scale their businesses to the point where they become household names or even world-beating unicorns. If the recession also happens to result in government policy that better supports the ability of entrepreneurs to grow, so much the better.