Despite a promising start to 2024, growing global uncertainties and domestic pressures have cast a shadow over the UK's economic outlook. We can no longer overlook the complex interplay of factors that have led to this slowdown in growth ...
Business investment did see a rise of 1.2% in Q3 2024, reflecting a commendable effort to stimulate productivity levels. However, this investment has not translated into improved output per hour worked.
In fact, productivity has fallen by 0.8% within the same quarter which is the most significant decline recorded since the end of 2023. My interpretation of this suggests that even as businesses inject capital into their operations, the underlying productivity issues remain inadequately addressed.
The growing inflationary pressures encapsulated by the Consumer Price Index (CPI) further exacerbate the UK's struggle for economic growth. A notable shift occurred in October, with inflation rising from 1.7% to 2.3%, attributed largely to a 10% increase in energy prices. The rising cost of basic utilities has significant implications, particularly for households and businesses grappling with additional financial burdens.
While this action was warranted to provide relief to businesses and consumers, the broader economic implications remain precarious. The decision to cut rates seemed to resonate with the approach of most Monetary Policy Committee members.
Still, I feel that there lurks an inherent caution in the tone of the accompanying meeting minutes, which hints at the potential for further rate cuts to be limited due to rising global risks and newly re-emerging inflationary pressures.
The implications of rising labour costs on business operations pose a substantial threat to both growth and sustainability. Data from the Office for National Statistics (ONS) highlighted that 39% of surveyed businesses pointed to labour costs as a principal reason for contemplating price increases.
This is indicative of a broader trend where businesses are forced to adapt to rising wage bills, not just because of increased market demand, but also due to changing legislation around National Insurance contributions and a raise in minimum wage levels. I believe such price adjustments risk turning a moderate inflation issue into one of significant concern, especially if companies begin passing on costs to consumers.
The unemployment rate in the UK rose to 4.3% between July and September, a subtle, but worrying shift after years of declining figures. The number of long-term unemployed individuals also increased, indicating that the job market remains under pressure.
In a period where economic growth is paramount, such shifts in employment trends could have profound implications for the overall consumer spending required to spark a recovery.
As organisations ponder the implications of rising costs and energy expenses, they must remain vigilant in monitoring both domestic and global economic climates for signs of recovery.
I feel that a renewed focus on investment in innovation and productivity enhancements will be crucial if the country hopes to reignite sustainable growth.
And that can only be a good thing for everyone.
If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.