The mood for the UK economy may be somewhat less than positive as it lurches sluggishly just above and below the zero-growth line, but our parochial worries pale into insignificance set against the implications of what is unfolding in Washington.
Running a business, never mind planning for and investing in its future when global trade relationships and tariffs are being politicised on a seemingly random retaliatory basis, must be a constant exercise in scenario gaming, sensitivity analysis and disaster-proofing.
So far as British commerce is concerned, the concern from labour-intensive sectors grow ever louder as the cost increases unleashed by last October’s Budget is due to hit at the beginning of April.
Economic signals
Looking at economic signals, rather too many of them are flashing red again after the brief positivity of H1 2024.
GDP
Much against market expectations of a marginal drop in Q4 2024, the figure came out as a 0.1% rise, tiny by any standards but at least it fended off what would have been unhelpful chatter about the UK being back in recession. Services and construction were up by 0.2% and 0.8% respectively, but production was down 0.8%. A seriously strong December came to the rescue, up by 0.4%.
For calendar 2024, GDP was up 0.9% (slightly above the OBR prediction of 0.8%) but the more meaningful GDP per capita reading for the year was minus 0.1% and has fallen in six of the last eight quarters. Amid the current political turmoil on immigration and the reality of falling birth rates, it’s worrying that the only way Britain seems able to grow its economy is by boosting its population. Investment in productivity would make much more sense, but achieving that objective is as elusive as chasing the most febrile will-o-the-wisp. Business investment was down by 3.2% in Q4 2024.
Inflation
CPI inflation also beat market expectations in January 2025, but not in a good way. The consensus prediction was 2.8%, but the number turned out to be 3.0%. It had been 2.5% in December 2024. The main culprits were air fares, food, motor fuel and the introduction of VAT on private school fees. So called ‘core’ inflation (excluding the more volatile elements, such as housing and energy costs) shot up from 3.2% to 3.7%, but at least service sector inflation is finally abating. It came down from 5.8% to 5.4%.
Employment
If the statistics weren’t so important, the self-admitted unreliable labour force data coming out of the Office for National Statistics would and should be ignored. Unfortunately, it’s key to this and any UK government’s strategic thinking. For what it might be worth, unemployment is said to be rising slightly from 4.3% to 4.4% in the quarter to December 2024, while economic inactivity is heading the other way, falling from 21.6% to 21.5%.
Vacancies dropped for the 31st consecutive time, though only very marginally by 9k to 819k. Given the warnings about staff cuts in sectors such as retail and hospitality driven by the Budget cost increases, this fall must be more to do with jobs being cancelled than them being filled. Pay growth is still elevated at 5.9%, or 2.5% when inflation is taken into account.
Insolvencies
January 2025’s 2,038 company failures meant an uptick on December 2024, but only by 8%. The figure was also 8% higher than January 2024. Despite talk in the media that the Directors of large numbers of hospitality businesses were throwing in the towel ahead of April’s cost surge, there were only 4% more Creditors’ Voluntary Liquidations (CVLs) in January 2025 than the previous month and only 12% more than in January 2024.
How should businesses navigate the uncertainties of 2025?
In a word: carefully. There is no excuse for blue sky thinking, when the sun is obscured by so many thunderclouds. The commercial and financial worlds are operating in the most uncertain geopolitical times since WW2 so agile business models and scenario planning with a focus on data-driven decision making is key.
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.