As 2024 drew to a close, it was difficult to imagine a more downbeat mood among economists and, more importantly, business leaders about the state of the UK economy. Dire warnings have come from the CBI and the British Retail Consortium, prompted in large part by deep disquiet about the October Budget.
It was unfortunate that these pronouncements were published on the same day that the Office for National Statistics (ONS) revised its economic output figures for Q3’24 from their original GDP growth of 0.1% to a zero growth position. However small that adjustment might be, the psychology of it is awful for business confidence.
Aside from a good deal of media, lobbying and political rhetoric, what is really going on in the economy?
GDP
Following what we now know was a poor Q3, Q4’24 has not started well with an overall October fall of 0.1%, which contrasted with the market’s expectation of growth of 0.1%. The key services sector (which accounts for 80% of output) was flat, while construction fell by 0.4% and production was down 0.6%. The oil and gas sector had a weak month, as did pubs and restaurants, but telecoms, logistics and law firms did better. Most commentators are blaming pre-Budget caution for this outcome.
Inflation
The upward trend away from the Bank of England’s target rate of 2% continued with a reading of 2.6% for November, in line with economists’ predictions. It had been 2.3% in October. The main drivers were petrol and diesel prices, groceries and tobacco. Core inflation excluding volatile items such as energy and housing was 3.5%, a rise from 3.3% in October. Service sector inflation was steady at 5%. By way of international comparison, consumer inflation is 2.4% in Germany and France and 2.3% in the USA.
Employment
With the normal caveat about the accuracy of ONS figures (which may not be reliable until 2027 by its own admission), unemployment is said to have been 4.3% for the three months to October, up from 4.2% for the quarter to September. Economic activity (possibly now considered the least accurate of all the employment-related statistics) was down 0.2% at 21.7%. Vacancies were down by 31k to 818k, the 29th consecutive quarterly drop but the figure remains above pre-pandemic levels. Earnings growth was 5.2%, or 2.2% after inflation.
The Manpower Employment Outlook Survey for Q1’25 strikes a grim note:
“Businesses have been paralysed by the recent Budget announcement, just as they were post-COVID” and “Hiring reality unable to match business growth mindset as new government policy drives hiring plan paralysis”.
Purchasing Managers Index
The well-respected S&P PMI survey for November reported somewhat surprisingly that business confidence remained unchanged, but both the output and overall PMI indices were down to eleven month lows at 45.7 and 47.3, respectively. Mirroring the Manpower survey, S&P reported the sharpest decline in workforce numbers since January 2021.
Business failures
Insolvencies are traditionally a lagging indicator, so the continuing fall in corporate insolvency filings in November belies the other less positive economic news. Individual monthly figures are skittish, but the rolling twelve month total has dropped to 25,683 compared to the peak of 27,188 in July 2024. This is still hugely higher than pre-pandemic, when this number was only 18,456 in February 2020. It is difficult to see how this downward trend can be maintained much longer, especially as the Budget measures start to bite into business viability in sectors like retail and hospitality.
What next for the economy?
Quite apart from the impact of the October Budget on business confidence, investment, interest rates, hiring and growth, there remains considerable geopolitical uncertainty. The advent of what seems certain to be a mightily maverick 47th President of the United States threatens to throw a good many economic balls high into the air without anyone necessarily bothering to catch all of them.
Add the continually unfolding events in the Middle East, the ongoing war in Ukraine and a rash of populist and authoritarian governments in Europe and South America, and even the owner of the clearest crystal ball would struggle to predict what 2025 will bring for the UK or indeed the global economy.
One thing is for sure, risk awareness, realism and nimble strategic thinking will be by far the most valuable business skills next year.
If you are considering professional advice for your business, Opus is here to independently assist. You can speak to one of our Partners, who can discuss options with you. We have offices nationwide and by contacting us on 020 3995 6380, you will be able to get immediate assistance from our Partner-led team.