January 2024 economic and business overview
January 5, 2024
In this month’s business overview, we take a look back on 2023 and investigate what growth predictions might be made for the coming year
An unwelcome last minute GDP revision from the ONS harks a coming recession
A quarterly movement of 0.1% in the UK’s GDP is not normally the stuff of media headlines, but when the Office for National Statistics announced just before Christmas that its revised data showed that our GDP had in fact fallen by this minuscule amount in Q3 2023 as opposed to the initial no growth outcome, it plunged economists into a frenzy of recession predictions.
One month’s GDP data is never a reliable indicator, but this ONS revision came alongside an initial estimate that the economy had shrunk by 0.3% in October 2023. Given the poor weather and early reports of pallid retail festive trading, there is now every possibility that we are already in a technical if relatively shallow recession.
GDP predictions for 2024
The year ahead offers few prospects of any significant improvement, despite continuing bullish noises emanating from the Chancellor in what is almost certainly an election year. Predictions for 2024 vary from the Office for Budget Responsibility suggesting growth of 0.7% to others calling a no growth outcome.
What nobody is brave enough to suggest is a sudden return to acceptable annual growth of somewhere between 1% and 2% in line with the long-term historic trend this century (the global financial crisis and Covid periods excepting).
Business insolvencies – did 2023 see a record?
Business failures have historically been a lagging economic indicator, with peaks usually happening two years after the start of recessions. Not so this time round, perhaps because of the structural disruption caused previously by the pandemic and then the war in Ukraine.
Corporate insolvency filings reported by the Insolvency Service for November brought the cumulative total for the first eleven months of 2023 to 24,460 across the whole of the UK, a rise of 15% on 2022 and 41% against pre-pandemic in 2019. December can be a notoriously difficult month to predict, but if it stays on trend, there is every possibility that 2023 will end up as a record year, eclipsing the previous highest ever annual total of 26,556 for 2009 during the global financial crisis.
These numbers are not being driven by aggressive creditor enforcement by the likes of HMRC. The vast majority of business failures (80%) are now Creditors’ Voluntary Liquidations (CVLs), where business owners have called a halt because their companies are too badly financially damaged or when they can see no future for them. In comparison, pre-pandemic in 2019, CVLs constituted only 67% of business failures.
Inflation rates fall
The one bright economic spot is inflation. The most commonly used measure, CPI, fell more than predicted by economists in November 2023, coming down from 6.7% in September and 4.6% in October to only 3.9% in November. The one worrying detail is that food inflation remained very high at 9.1%, although it is dropping from its peak of 19.2% in March 2023. The general expectation now is that inflation could fall to 2.5% by the end of 2024 and hit the Bank of England’s target level of 2% in 2025.
Interest rate predictions for 2024
The drop in inflation and the poor GDP numbers may well presage a more rapid fall in interest rates than expected just weeks ago, which would be beneficial for the business community, which took on significant extra debt during the pandemic. Rates look to have peaked at 5.25% but could still be as high as 4.5% by the end of 2024. The Bank of England has signalled caution about cutting rates too quickly until it is sure that the inflation genie is well and truly back in the bottle.
How should businesses approach 2024?
In a word, cautiously. There will be expansion and acquisition opportunities, as there always are, even in less buoyant times like these. Taking advantage of these safely requires several important boxes to be ticked: determined due diligence, adequate funding, strict financial discipline and heightened risk awareness.
For other businesses it will be a matter of treading carefully, avoiding taking unnecessary financial risks, prioritising cash management, a strong focus on mitigating credit risks and keeping a wary eye on supply chains.
2024 will not be an easy year for most in the commercial world, but there are signs that the UK’s ailing economy can be rejuvenated with the right medicine.
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.