August 2024 economic and business overview
August 6, 2024
Does the new government necessarily herald a new economic era? There has certainly been a change of tone, even if it seems rather more difficult to detect an actual change of mood as yet. We have gone from defensive posturing by the outgoing government in its last months to something very different. We have seen a torrent of economic policy announcements since 4th July as part of an overall strategy of delivering the change promised during the election campaign and in economic terms, we are seeing what is billed as a dash for growth.
What is the new government planning to do?
The principal points in the new economic approach, as revealed so far, include:
- Creating a National Wealth Fund.
- Setting up a range of strategic business policy bodies, including:
- A Growth Mission Board
- A Growth Delivery Unit inside the Treasury
- A Council of Economic Advisers
- An Industrial Strategy Council
- Establishing a new entity, Great British Energy to manage the existing dysfunctional energy market.
- Substantial reform of the Planning system to combat endemic nimbyism and delays to house building and infrastructure projects.
- Boosting investment in critical infrastructure.
The economic legacy inherited by the new government
GDP
After the disappointment of a no-growth April, we saw a surge in May, with output reported by the Office for National Statistics rising by 0.4%, double market expectations. For the first time in many months, all three main sectors recorded a positive outcome. The vital services sector was up 0.3%, production by 0.2% and construction by 1.9%. The latest Bloomberg monthly survey of 56 economists produced a prediction that growth would by 0.8% in 2024 and 1.3% in 2025.
Business investment
We are being told that an essential ingredient in the recipe for economic growth is strong business investment, so the downward revision of the Q1 2024 figures from 0.9% to only 0.5% is a major disappointment. The reduced figure was 1% lower than in Q1 2023.
Our blog on the topic late last year described in detail the sad, inadequate record of UK business investment in recent decades.
Employment
According to one independent survey, job vacancies are now lower than pre-pandemic for the first time, suggesting an easing of the jobs market. ONS figures show that unemployment came in at 4.4% for the quarter to May 2024, up from 4.2% on the previous quarter and 4% a year earlier. One worrying aspect of the ONS data is the continuing strength of pay rises, running at 5.7% against the Bank of England’s prediction of only 5.1%. The wage rise rate is dropping, but only marginally.
The new government is rightly as concerned as its predecessor about economic inactivity, which has dropped very slightly to 22.1% of the workforce from the previous quarter but is still up by 0.8% from a year ago. 9.4m people between 16 and 64 are economically inactive. Of these, 2.8m are inactive because of ill health.
Inflation
June’s CPI inflation stayed steady at 2.0%, exactly at the Bank of England’s target rate, but the headline rate masks two slightly less reassuring realities. Inflation for the vital services sector remains worryingly ‘sticky’ at 5.7% (against a BoE prediction of 5.1%), and core inflation (which excludes volatile elements such as energy costs) is 3.5%. However, last week, the BoE deemed it the right moment to cut interest rates to 5%, the first reduction since March 2020, which will be welcome news to consumers and the business community.
Insolvencies
Individual monthly figures for business failures are still unpredictable, with rises against 2023 in April and June as compared to falls in March and May. The long-term trend is slightly upwards, with a total of 26,688 for the rolling twelve months to June 2024, very slightly up compared to a total of 26,608 for calendar 2023. The worst-hit sectors are construction (17% of the total), hospitality (15%), retail (9%), manufacturing (8%) and professional services (8%).
Ironically, the potentially improving economic background could generate a further rise to even higher insolvency levels as some businesses with balance sheets and profitability are still damaged from the pandemic, the Ukraine conflict supply chain ripples and the ongoing cost of living crisis expand too quickly and run out of cash.
Business outlook
With mainly positive economic news and a government policy agenda heavily focused on business in general and on growth in particular, there are good reasons for some cautious optimism. Nevertheless, business owners and managers need to remain vigilant and risk aware. There is no justification for any of the ‘irrational exuberance’ famously criticised by the US Federal Reserve Chairman, Alan Greenspan back in 1996.
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.