Insights Into Indicators Shaping The Upcoming Budget
Can the economy regain momentum?
Posted by Roger Eddowes on 03/10/2024 @ 8:00AM
The UK economy is currently navigating a landscape fraught with complexities as it heads towards the new government's much-anticipated first Budget. In recent months, economic growth has flatlined indicating a number of challenges despite sporadic recovery in certain sectors ...
Can the economy regain momentum ahead of the Budget?
July marked the second consecutive month of no growth in the UK economy, as highlighted by recent official figures. The stagnation can be attributed to an uneven performance across sectors. While the service sector, particularly in health and computer programming, experienced a modest uptick, the declines in manufacturing and construction continue to cast shadows over the sustainability of recovery.
This duality raises vital questions: can the economy regain momentum ahead of the Budget? Or are deeper systemic issues at stake?
One of the most poignant aspects is that retail sales have shown a surprising resilience amid economic uncertainty. Reports reveal that retail sales in Great Britain rose by 1.0% in August, following a 0.7% increase in July, bringing annual growth to 2.5%.
Despite this seemingly positive trend, sales volumes remain 0.4% below pre-pandemic levels, indicating that recovery may still be fragile and uneven. Though warm weather and seasonal promotions have aided the retail sector, caution remains paramount in understanding how transient these factors may be.
"Meanwhile, inflation continues to present a challenging backdrop!"
The Consumer Price Index (CPI) inflation held steady at 2.2% in August, slightly above the Bank of England's 2% target. The underlying pressures contributing to this phenomenon stem from fluctuating airfares and changes in fuel prices.
Notably, services inflation rose to 5.6%, prompting concerns about domestic price pressures and the long-term trajectory of inflation. As we reached October and energy bills rose due to the increase in the Energy Price Cap, analysts anticipate a potential upward shift in inflation, which could further complicate the economic picture moving into the final quarter of the year.
As the Monetary Policy Committee (MPC) of the Bank of England keeps interest rates on hold at 5%, it suggests a cautious approach to monetary policy in the face of uncertain economic conditions. Despite the division among MPC members regarding the direction of policy loosening, a more dovish outlook indicates a potential shift towards interest rate cuts in November.
Equally concerning is the rising youth unemployment rate, which has increased from 11.8% to 13.3% among 18 to 24-year-olds over the past three months. This demographic, once a hopeful driver of economic dynamism, is now facing significant barriers to entering the labour market. In stark contrast, there is a discernible shift in employers' hiring preferences towards experienced workers, as evidenced by the decline in payrolled employees under 25, compared to increases in those aged 35 to 49.
Amid these challenges, the Office for Budget Responsibility (OBR) has advocated for increased public investment, arguing that a sustained 1% of GDP increase could bolster the economy's long-term potential output. Historical patterns reveal that both public and private investment in the UK has languished below G7 averages since the global financial crisis.
"As the government approaches its first Budget, the importance of fostering a robust investment climate cannot be overstated!"
It is evident that while certain sectors display resilience, the underlying economic pressures are significant and multifaceted. The road to recovery appears riddled with obstacles, from low productivity and investment challenges to rising youth unemployment.
It is imperative we understand these complexities when considering the impact of the upcoming Budget on the broader economic landscape.
Until next time ...
ROGER EDDOWES Business Godparent
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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