Transatlantic chill: Freelancers must prepare for imminent US recession if job cuts continue
The chance that there could be a deep US recession in 2025 is growing. This news would cast a long shadow over the UK’s already strained economic prospects. With tightly interwoven economies, the UK is poised to feel the reverberations of any significant downturn across the Atlantic, particularly within its labour market. Here we look into the implications for the UK’s freelance economy.
Here’s how things could go south if more jobs are lost in the US and the economy goes into a recession as early as May.
UK sectors to be impacted by a US recession
Firstly, trade, the lifeblood of most modern economies, would be severely disrupted. The US, a major trading partner, would see a sharp decline in demand for UK exports, particularly in sectors such as manufacturing, financial services, and technology. This reduction would inevitably trigger job losses within these key industries. Furthermore, the overall contraction of global trade would negatively impact the UK shipping and logistics sectors.
Financial markets, already prone to volatility, would experience turbulence. A US recession would likely cause instability across global markets, including those in the UK, leading to reduced investment and subsequent job losses within the financial sector. UK firms with US investments or subsidiaries would be directly affected, potentially forcing restructuring and redundancies.
Investor and consumer confidence, fragile at the best of times, would also take a significant hit. The widespread perception of a US recession would dampen investor enthusiasm, leading to delayed or cancelled investment plans and hindering job creation.
Similarly, UK consumers, witnessing the turmoil across the pond, would likely curtail their spending, impacting sectors reliant on consumer demand, such as retail and hospitality.
The potential consequences for the UK salaried job market are stark. Increased unemployment is a near certainty, with sectors heavily reliant on US exports, such as manufacturing and financial services, bearing the brunt. Retail and hospitality would also face significant challenges due to reduced consumer spending. Slower wage growth would likely occur, as increased unemployment diminishes workers’ bargaining power.
What are the economists saying about a US recession?
The growing sense of inevitability surrounding a US recession is captured in the words of Jesse Rothstein, Berkeley professor and former chief economist at the US labour department, who, in a Blue Sky post, declared, “It seems almost unavoidable at this point that we are headed for a deep, deep recession.” He continued, “Just based on 200K+ federal firings & pullback of contracts, the March employment report (to be released April 4) seems certain to show bigger job losses than any month ever outside of a few in 2008-9 and 2020.”
This paints a grim picture of the immediate employment landscape in the US, with inevitable spillover effects for the UK.
Adding to the concern, Torsten Slok, of Apollo Global, has expressed worries about the “downside risks to the economy and markets from: 1) the impact of DOGE layoffs and contract cuts on jobless claims and 2) persistently elevated policy uncertainty weighing on capex spending decisions and hiring decisions.”
Slok highlights the potential impact of federal job cuts, stating, “The consensus expects total DOGE-related job cuts to be 300,000, and the number of people filing for unemployment benefits has been rising in Washington, DC, but not in Virginia, Maryland, and Washington, DC combined.”
He further explains, “Total employment in the United States is 160 million, with 7 million unemployed. Also, about 5 million people change jobs every month. In that context, 300,000 federal jobs lost is not much. However, studies show that for every federal employee, there are two contractors. As a result, layoffs could potentially be closer to 1 million. Any increase in layoffs will push jobless claims higher over the coming weeks, and such a rise in the unemployment rate is likely to have consequences for rates, equities, and credit.”
Slok also notes the unusual behaviour of credit spreads. A credit spread is the difference in yield between a riskier bond such as a corporate bond and a safer bond (like a government bond), showing the extra return investors demand for taking on more risk.
Slok says, “Economic policy uncertainty is spiking higher, but credit spreads are not widening. The question is if persistently elevated policy uncertainty will begin to have a negative impact on capex spending and hiring decisions. The bottom line is that the incoming data remains strong. But the near-term downside risks to the economy and markets are growing.”
Not all bad news for the UK’s freelance economy
While the severity of the impact will depend on factors such as the depth of the US recession and the UK government’s policy responses, the strong economic ties between the two nations suggest that a significant downturn in the US would inevitably create a chill across the UK job market.
However, there lies a potential silver lining for freelancers. In times of economic uncertainty, businesses often seek to reduce fixed costs, including full-time employment. This creates opportunities for flexible, project-based work. The increasing acceptance of remote work further empowers freelancers. UK-based freelancers can offer services to US-based companies, at potentially lower cost than US-based workers.
While a US recession poses significant challenges to the traditional UK job market, it could simultaneously create new opportunities for freelance professionals who can offer cost-sensitive, specialised, and adaptable services.
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