Since the general election, the conversation surrounding economic growth in the UK has taken centre stage, yet it is fraught with contradictions that raise eyebrows ...
Here's hoping for a more harmonious balance that allows growth to take root soon!
As the government endeavours to push for a dynamic and flourishing economy, there appears to be an undeniable tension between its growth strategies and measures that threaten to impede development.
"There seems to be a duality within the current growth agenda!"
Firstly, it is essential to acknowledge that the government's ambitions for growth come packaged with a slew of vague promises. Both the Prime Minister and the Chancellor have made it clear that they intend to remove various obstacles hindering a thriving economy.
This includes addressing excessive regulations, easing planning restrictions, and allaying environmental concerns that could stifle enterprise. The intention is to create an environment where businesses can flourish, but the practical execution of these strategies is less evident when considered alongside existing policies.
One of the most contentious aspects of this agenda is the anti-growth cost burdens introduced in the last Budget. I cannot help, but question how the government's promise to foster Growth can coexist with new financial constraints that companies may find overwhelming.
The juxtaposition of Rachel Reeves' insistence that businesses remain firmly rooted in British soil is stark against the backdrop of AstraZeneca's recent decision to abandon its UK expansion in favour of investing massive sums in the US. Such developments are troubling, as they suggest that the government's growth rhetoric is being undermined by its own actions.
I am concerned that the UK's purported regulatory easing may merely serve as a safeguard to prevent the economy from lagging, rather than positioning it for robust growth. As the US and EU aggressively pursue regulatory reforms aimed at business expansion, the UK's efforts may feel like too little, too late.
This inefficiency highlights a central issue: while the government espouses bold plans for economic revitalisation, the lingering pressure from previous poor policy decisions appears to be sapping the momentum required for true economic growth.
"Alarming signals are surfacing from various economic indicators!"
For instance, data from the S&P UK PMI reveals a significant retrenchment in hiring, with job losses mounting for the fourth consecutive month. Additionally, as service and manufacturing sectors report declining outputs, the cloud of rising payroll costs accentuated by new legislative measures casts a long shadow. These burdens result in diminished business confidence, threatening the very foundation upon which economic Growth must be built.
Forecasts vary wildly in terms of anticipated job losses due to elevated employee costs. While the Office for Budget Responsibility estimates that around 50,000 jobs could be at stake, some analyses such as from Berenberg project a staggering tripling of that figure to 150,000. Despite these gloomy predictions, I argue that the labour market is loosening very gradually, leaving room for some optimism. However, the overall sentiment remains one of deep unease.
The sharp escalation in production costs has repercussions extending beyond the domestic market, impacting exports adversely. As the UK grapples with poor trade performance, uncompetitive production costs pose a substantial threat to foreign trade. This is particularly evident when considered alongside the striking increase in individuals leaving the UK under the new non-dom rules and a concerning rise in businesses experiencing 'critical' financial distress.
I do feel there is a glimmer of hope though. Recent expectations indicated that the Bank of England might deliver another cut to the bank rate, a move that, despite concerns regarding inflation, could improve business prospects. Rate reductions could act as a catalyst for economic activity, providing businesses with the breathing room necessary to innovate and grow amidst pressures from rising costs.
Lastly, despite the headwinds, the UK's economy possesses inherent advantages, particularly in the realm of artificial intelligence. I posit that the integration of AI could significantly uplift the annual growth rate, enabling a shift from 1.5 per cent to approximately 2 per cent in the 2030s. UK equities may also outperform other developed markets over the next decade, helping to narrow valuation gaps.
"This could enhance the attractiveness of British investments!"
While the UK government's agenda for growth is undoubtedly ambitious, the contradictions embedded within it - between aspiration and execution, promise and practice - pose significant challenges for the Labour government.
Here's hoping for a more harmonious balance that allows growth to take root soon.
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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