May 2024 economic and business overview
May 1, 2024
The UK economy appears to be on a slow upward trajectory in 2024 after a rocky start and on the back of a tough business landscape in 2023. We hope this trend continues and improves as UK business owners desperately need some stability and growth.
Delving deeper into April’s stats, there was mixed news with a pleasant surprise in the insolvency figures.
April’s economic stats
Output growth
GDP came in 0.1% higher in February 2024 after a 0.3% increase in January, according to statistics from the Office for National Statistics (ONS). On the more reliable quarterly basis, output grew by 0.2% in the three months to February.
The key services sector saw growth of 0.1% for the month and 0.2% for the quarter, with eight out of the fourteen sub-sectors recording growth. The best-performing sub-sector was professional, scientific and technical activities, followed next by administration and support service activities. Education saw the largest output shrinkage. Despite the ongoing cost of living crisis, consumer-facing services grew by 0.2% in the three months to February 2024
Manufacturing also rose 1.1% for the month and 0.7% for the quarter. This was driven by a major increase in the manufacture of transport equipment. Electricity, gas steam and air conditioning supply also contributed positively, with a 1.2% growth in this period. Offsetting these gains were falls of 2.0% in water supply, sewerage, waste management, and 2.5% in mining and quarrying.
Poor weather badly impacted construction, falling 1.9% for the month and 1.0% for the quarter. The fall of 3% in new work was offset partially by a rise of 1.6% in repair and maintenance activity. New work on infrastructure was particularly badly hit.
Inflation
Data from ONS showed that CPI inflation fell again to 3.2% in March, though this was marginally higher than market expectations of 3.1%. It had been 3.4% in February. Much of the latest drop was attributed to lower food prices, but with offsetting rises in motor fuel prices. ‘Core’ inflation (excluding energy, food, alcohol and tobacco) fell to 4.2% from 4.5% in February, while services sector prices rose by 6%.
Business failures
The Insolvency Service reported that corporate insolvencies plummeted unexpectedly by 24% in March 2024 compared to March 2023, but they remained 46% higher than in March 2020 as the pandemic broke. They were also 46% higher than pre-pandemic on a rolling twelve-month basis. The reasons for this sudden fall are unclear, although the timing of Easter will have had at least some effect.
Business confidence
The business confidence index produced quarterly by the Institute of Chartered Accountants (ICAEW) for Q1 2024 tripled to 14.4 compared to Q4 2023 and is double the pre-pandemic level.
Business investment
Despite the general positivity of the ICAEW Business Confidence index for Q1 2024, there is one unwelcome element in its findings. The increase in business investment may have risen in Q1 2024 to 2.3% compared to just 1.6% in Q4 2023, but the respondents to the survey expected to only increase spending by 1.6% in the next twelve months, compared to the historic trend of 2%. The UK has long been a laggard on business investment, an adverse trend that is the root cause of our poor productivity and lack of international competitiveness.
Government borrowing
Total government borrowing figures for March 2024 from ONS were £1.9bn above predictions and 6% above the target set by the Office for Budget Responsibility, despite the tax burden having been raised to the highest level since WW2. Nevertheless, the total of £11.9bn was £4.7bn less than in March 2024. Borrowing in the financial year ending March 2024 was provisionally estimated at £120.7 billion, £7.6 billion less than in the same twelve-month period a year ago.
The labour market
Unemployment ticked up to 4.2% as labour market pressures eased further, but the major, growing and ongoing concern is economic inactivity. 22.2% of the potential workforce (9.4m people) are neither in work nor seeking employment. Pay increases moderated to 4.2% but remain significantly higher than inflation.
Interest rates
After recent high hopes of multiple and meaningful cuts to interest rates, market predictions have moderated so that the EY Item Club is now suggesting that the key rate will only fall this year by 0.75% to 4.5%.
Business rates
The business community was let down in April as the government yet again failed to deliver on its many years of vague promises to reform the iniquitous, regressive business rates system, instead allowing a huge increase in costs to go through. This will hit the embattled hospitality section and the bricks-and-mortar part of the retail sector particularly hard. According to property consultants Altus, the extra cost will be £1.66bn across the whole economy.
National minimum wage (NMW)
The other sharp upwards nudge to business input costs from April onwards is the near double digit percentage hike in the NMW. A report by the Low Pay Commission suggests that this will impact around 7% of all jobs in the UK, but once again hospitality and retail will be disproportionally impacted.
Where is the economy headed?
The EY Item Club has now revised their GDP prediction for 2024 to a modest 0.7% (down from 0.9% in their January report) but have uprated 2025 from 1.8% in January to 2% now.
How should businesses react?
This mixed economic news coupled with minimal growth prospects are not the stuff of economic miracles, but overall, the news is getting better and has considerably improved from last year. The message for businesses is steady as she goes, keeping aware of not just risks but potential opportunities too.
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.