More mixed news on the economy amid the chaos of the election campaign
As during any election campaign, it’s usually best to avoid all media interpretation of economic statistics amid the swirl of reckless hyperbole and the plethora of highly questionable ‘facts’ being peddled by all political parties in their frantic efforts to win over voters.
The savage rebuke issued by the Institute for Fiscal Studies in their analysis of the various party manifestoes said it all, criticising the veracity of the plans set out in these dubious documents.
Far better instead to stick with the basic data published in the past month by The Office for National Statistics (ONS), the Bank of England (BoE), the Insolvency Service and others. Together, these give us a mixed picture of the UK economy, although undoubtedly a more positive one than only a few months ago. However, whether the UK economy has indeed ‘turned a corner’ is still unclear.
GDP
After positive news in March, output growth ground to a halt in April 2024, with a zero outcome. Within the overall picture, the all-important service sector was up 0.2%, but both manufacturing (-0.9%) and construction (-1.4%) were down. Services saw growth for the fourth consecutive month, while construction was down for the third consecutive month.
Nevertheless, GDP rose by 0.7% when measured over the longer and more reliable three-month period to April. By this calculation, services were up 0.9%, manufacturing was up 0.7%, but construction fell by 2.2%.
Within the key services sector, the leaders over three months were the transport and storage sub-sector (up 3.7%), followed by administrative and support services (up 2.1%). Nine of the fourteen sub-sectors recorded output gains.
Inflation
The star statistic of the month was undoubtedly the news that overall CPI inflation has finally come back down to the BoE target of 2% for the first time in three years, dropping from 2.3% in April. Unfortunately, two other inflation numbers demonstrated a potentially worrying element of ‘stickiness’, which had the effect of persuading the Bank to stay its hand for now on interest rate cuts. The problem areas are ‘core’ inflation (excluding more volatile items like energy), which is at 3.5%, and service sector inflation even higher at 5.7%. Both are falling gradually, but not fast enough.
The main reason for the reduction in inflation was a sharp drop in the rate for food and non-alcoholic beverages from 2.9% in April to only 1.7% in May. This was the fourteenth successive fall from a high of 19% in March 2023.
A note of caution was sounded by the National Institute of Economic and Social Research, which predicted that inflation was likely to rise again in the second half of 2024.
Pay growth
Average pay (excluding bonuses) is also clearly too high for the BoE’s taste, coming in at 6% for the three months to April 2024 or 2.9% net of inflation, pushed up partially by the double-digit rise in the National Minimum Wage at the start of April. This is a double-edged sword because while it is potentially inflationary, it also boosts consumer spending power for some service sectors.
Employment
Unemployment was up to 4.4% for the three months to April 2024 from 4.3% a month earlier. It is growing at the fastest rate of any OECD country, according to research by the TUC.
The more worrying factor for the economy is the level of economic inactivity, where 22.3% of the workforce (9.4 m people) is not actively seeking a job. This continues to rise, up by 385k over the past twelve months. Total hours worked were down both quarter-on-quarter and year-on-year.
Staff shortages
Job vacancies appear to have plateaued at just over 900k, down from a peak of 1.3m in May 2022. However, the percentage of companies reporting difficulties with staff shortages is profoundly worrying for certain sectors, including hospitality at 25%, health and social care at 18.4% and manufacturing at 17.6%.
Government borrowings
The National Debt has risen to £2.7tn, equivalent to 99.8% of GDP, which is double the level seen from the 1980s through to the global financial crisis in 2008. Borrowings in May 2024 were £15bn, up by £800m compared to May 2023. The interest cost from servicing this debt was £8bn for the month.
Insolvencies
Tracking the business failures trend is turning into a roller coaster ride. After a record of some 26,600 in 2023 and further rises in January and February this year, insolvencies were sharply lower year-on-year in March, significantly higher in April and now lower again by 19% in May. Despite these numerical gyrations, the rolling twelve-month total for May 2024 is 44% higher than the last twelve months before the pandemic struck in 2020.
The year ahead
We remain optimistic that well-run, risk-aware companies without excessive leverage will find opportunities over the short and medium term to grow, improve their profitability, and further strengthen their balance sheets. The danger lies in unplanned, uncontrolled expansion that is not matched by sufficient financial and management resources or strategic thinking.
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.