As we continue on what looks to be an uncertain road through the UK economy in 2025, all eyes have turned to the USA and the second incarnation of Donald Trump as the 47th US President. The threat of tariffs hangs over the world, potentially affecting many industries and businesses. The UK cannot escape the new global economic realities.
The impending impact of the revenue raising measures in last October’s Budget is currently relegated into a distant second place or lower for business journalists. Whilst the issues may not be making headlines anymore, they haven’t gone away for UK businesses, especially those in sectors due to be hardest hit as the extra costs land in April. The PR departments of trade bodies and leading companies in retail, hospitality, leisure and entertainment are lobbying hard for a government re-think, though with little prospect of being heard.
These concerns are playing out against some distinctly mixed and not necessarily encouraging official statistics.
GDP
The data for November 2024 published by the Office for National Statistics (ONS) showed a marginal rise of 0.1%, just below the market expectation of a 0.2% increase. This was at least better than the 0.1% fall in October. The vital services sector saw a 0.1% rise, including a welcome 0.5% increase for consumer-facing services. Construction was up by 0.4% but production fell by 0.4%. The more reliable three months’ figure to November showed a zero-growth outcome.
Stronger growth for this year and next is expected at a UK level with the Office for Budget Responsibility forecasting that overall GDP growth will have been 1.1% in 2024, increasing to 2% in 2025 and 1.8% in 2026. In Scotland, the latest Scottish Fiscal Commission forecast predicts that growth in 2024 was 1% (up from 0.2% in 2023) rising to a 1.5% uplift in 2025 and 1.6% in 2026.
Inflation
In a reversal of the recent upwards trend, the CPI figure for December 2024 from the ONS fell back to 2.5% from the previous month’s 2.6%. The main factors were falls in hotel and restaurant bills. Air fares also dropped, but there is a question mark over the timing of the data collection points. Core inflation excluding volatile items such as energy and housing was also down from 3.5% in November to 3.2%. Service sector inflation was 4.4%, the lowest rate since March 2022.
Employment
For what these data are worth given the admission of the ONS that its labour force research will be unreliable until 2027, unemployment rose from 4.3% to 4.4% for the three months to November 2024. Vacancies fell by another 24k, the 30th consecutive drop. Some adverse news for inflation prospects came from the revelation that pay rises accelerated to 5.6% after having been 5.2% in the quarter ending in October.
Government borrowings
There was an unwelcome development for the Chancellor with the announcement that government borrowings for the first eight months of the fiscal year have exceeded the official forecast made by the Office for Budget Responsibility at the time of the October Budget, reaching £129.9bn against the projected £125.8bn. Borrowing of £17.8bn for December was the highest monthly total since the pandemic. This is unfortunate at a time when the annual cost of servicing government debt now exceeds the Defence Budget and is the focus of much economic and political attention.
Business failures
Historically, insolvencies are a lagging indicator, so the continuing fall in corporate insolvency filings in December belies the turgid state of the economy. Individual monthly figures are an unpredictable roller coaster, but the total for calendar 2024 dropped to 25,421 compared to the rolling twelve-month peak of 27,188 in July 2024. This is still far higher than pre-pandemic, when this number was only 18,456 in February 2020. The downward trend will likely reverse at some stage this year as the Budget measures push fragile businesses in the worst hit sectors over the financial cliff.
What next for the economy?
It has been said frequently in recent years that the business world is living in interesting times, but quite how UK entrepreneurs are supposed to plan, have the confidence to invest and take the risks that create success under such uncertain national and geopolitical circumstances is anybody’s guess.
This is unfortunate for an economy in desperate need of a stronger investment climate to drive the growth needed to turn round the damage to the public finances inflicted in recent years.
Nothing in recent months to make us change our view that risk awareness, realism and fleet-footed and flexible strategic thinking will be the essential business skills this year. Quite the reverse, current events have only served to reinforce this message.
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 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.