Green shoots of recovery or another false dawn?

The chart of the UK’s monthly GDP movement over the past thirteen months, published in mid-March by the Office for National Statistics, confirms just how erratic and weak our growth performance was in 2023. There were six monthly rises and six monthly falls, all of less than 0.75% and most far smaller than that. Across the year as a whole, GDP grew by just 0.5% with negative growth in the final two quarters, pushing the UK into a technical recession.

As the trend predicted, a marginal growth figure of 0.2% appeared in January 2024. This, coupled with good news about February’s inflation, sent the normally cautious Governor of the Bank of England, Andrew Bailey, into paroxysms of positivity. He stated that rate cuts were ‘in play’ although he declined to go into detail about when or how much the cuts would be, which was not the reassurance that businesses and personal borrowers wanted.

The details of the GDP rise

Construction was the winner with a leap of 1.1%, although it was still down by 0.5% over the three months to January 2024. The vital service sector also rose by 0.2%, and within that, the hike was even higher at 0.6% for consumer-facing services.  Production was down 0.2%, including a flat outcome in the manufacturing sector.

Inflation falls significantly

CPI inflation ended its brief pause at 4% and dropped significantly to 3.4% in February, though core and food inflation remained stubbornly elevated at 4.5% and 5%, respectively. Residential rents were 9% higher than a year earlier. Price rises in the key services sector were also high at 6.1%.

The labour market and pay rates

The Bank of England will be concerned that pay rises continue to barrel along at 6.1%, but the major focus is on the level of economic inactivity in the labour force. Across the UK as a whole, 21.8% of those between 16 and 64 (9.2m people) are not in work or actively seeking employment. In Scotland, the picture is even worse, with 31.7% of the workforce economically inactive.

Vacancies fell again and are now down by 224k year-on-year, although they are 107k above pre-pandemic levels. By common consent, the labour market has eased since the darkest days of 2021 and 2022, but resource shortages continue to plague a wide range of sectors and companies.

These figures point to the UK’s current poor productivity and must be addressed by the government alongside other growth measures.

Corporate insolvency stats

Corporate insolvency is a lagging indicator across most sectors, except in construction, where rising failure levels can be the canary in the coal mine of business risk and distress. Based on previous recessions, any improvement in economic performance and business confidence could take as long as two years to manifest themselves in lower insolvency filings.

Both January and February 2024 saw higher numbers than the corresponding months in 2023, so the rolling twelve-month figure for business failures for the whole of the UK has burst through the 27,000 barrier, another all-time record. It is now 13% higher than in February 2023 and 46% above immediate pre-pandemic levels in February 2020. A total of more than 30,000 for calendar 2024 is now a very real possibility. Scotland too is on a rising trend, but a lower one. Its rolling twelve-month total is now 8% above February 2023 and 21% higher compared to February 2020.

Has the tide finally turned for business rescue?

Within the escalating insolvency statistics, there is a hint of a silver lining as business rescues through Administrations are beginning to recover. February 2024 saw a higher number of Administrations than the equivalent month pre-pandemic in 2020. At the same time, there are positive noises coming out of the UK M&A. Buyers are recovering their appetite for deals, sellers are adjusting their price expectations, and access to funding is improving.

How does the rest of 2024 look?

These early encouraging signs should be treated with caution until consistent positive trends become established. Risk has not gone away, but neither have opportunities. Much will depend on interest rate cuts later in the year and their potential to ease pressure on highly leveraged companies and give our poor business investment record a much-needed boost.

If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.