February 2024 economic and business overview
February 1, 2024
More mixed signals on the economy mean uncertainty for UK businesses
We finished 2023 with arguments raging on whether the UK was already in a shallow recession or might end up in one early this year. Now we have another batch of confusing signals. The respected EY Item Club have just upgraded their GDP growth forecast for 2024 to 0.9% from the 0.7% they predicted last October and for 2025 to 1.8% from 1.7%. But the IMF held their 2024 prediction at 0.5% but raised 2025 to 1.6%. The thirty-year trend for the UK is average annual growth of 2.1%.
Meanwhile, the IMF and the Chancellor are squabbling on fiscal policy, with the IMF warning that tax cuts are not a good idea and Mr Hunt seemingly engaged in managing expectations about the size of cuts, whilst admitting publicly to ‘structural weaknesses’ in the economy.
Key economic indicators
What are the main factors driving economic policy?
- GDP was down 0.2% in the quarter to November 2023. There was zero growth in services, a 1.5% drop in manufacturing and a 0.6% fall in construction output. The less reliable monthly figure for November saw a rise of 0.3%, but that simply cancelled out the equivalent rise in October.
- The previous rapid fall in inflation came to an unexpected halt with an uptick to 4.0% in December 2023 from 3.9% in November, caused by rises in the price of tobacco and alcoholic drinks. Core inflation was static at 5.1%, while food inflation remained high at 8% despite a fall from 9.2% in the previous month.
Good and bad news on unemployment
Unemployment has stabilised at least for now at 4.2% and job vacancies fell for the 18th consecutive quarterly comparison, which is a record winning streak. Wage growth fell from 7.3% to 6.6%, suggesting that some of the inflationary heat is finally disappearing from the labour market. This is being reinforced by a steady stream of major job cut announcements from the likes of John Lewis Partnership, Sky, Tata Steel and even the professional services firm, EY.
Record high for corporate insolvencies
Underlying all of this was the big news that the Insolvency Service corporate insolvency figures for December 2023 confirmed that 2023 had broken the previous record number of annual business failures set at the height of the global financial crisis in 2009. There were 26,595 insolvencies in 2023 and there is every prospect of a further increase to 28,000 or more in 2024. Read more in our detailed analysis of this record, here.
Impact on interest rates
The surprise uptick in inflation may or may not be a blip, especially as flash points in the Middle East threaten to escalate into a more serious regional conflict. Whichever way inflation goes as we progress through 2024, there is no doubt market expectations on interest rate cuts have changed. The prospect only a few weeks ago of a March start for reducing rates has turned into a far more cautious view and a near certain delay until mid-year at the earliest and possibly a slower reduction than previously thought after that.
Rampant uncertainty
Everywhere the UK business community looks, it finds more questions than answers. Will inflation resume its downward trend? When will interest rates start to fall and how far? How buoyant or otherwise will GDP growth be this year and next? Will labour market easing really mean enough staff for hard-pressed sectors like hospitality and retail? How will consumers behave once their festive season financial hangovers clear? Could the risk of higher insolvencies abate? A background uncertainty is the timing and outcome of the forthcoming general election and what this could mean for business.
How to navigate 2024?
In a word, cautiously. There will be a fine balance between risk management and seeking new opportunities, which these sorts of economic conditions can produce. Tight profit margin and cash control will be top of the agenda, as well as having quality and timely management information to guide decision making. Regular and open communication with internal and external stakeholders will be important too, so that expectation management can neutralise the negatives of any unexpected developments.
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.