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News & Views

Green shoots or false dawn for the UK?, asks Opus

Is there really light at the end of the UK’s economic tunnel at last?  The statistics published in the past month were at least partially positive, prompting the normally lugubrious Governor of the Bank of England, Andrew Bailey to make some remarkably optimistic public comments about our prospects.  We ask Nick Hood, Senior Business Adviser at the Opus Business Advisory Group ( whether these are genuinely the first green shoots of recovery or a false dawn.

“Having been stuck at 4% for a couple of months, inflation fell significantly to 3.4% in February, though core inflation and food inflation remained stubbornly elevated at 4.5% and 5% respectively, while residential rents were 9% higher than a year previously.

GDP rose marginally by 0.2% in January, reversing the technical recession from H2 2023.  Construction was the star performer with a jump of 1.1%, although it was still down by 0.5% over the three months to January.  The vital service sector also rose by 0.2% and within that overall number, the hike was even better at 0.6% for consumer-facing services. Production output fell by 0.2%, with manufacturing flat.

Despite this good news, the Bank of England will be worried that pay rises continue to barrel along at 6.1%, but their deepest concern must be the level of economic inactivity in the labour force. 21.8% of those between 16 and 64 (9.2m people) are not in work or looking for a job, which is 700k higher than pre-pandemic.  Vacancies fell again and are now down by 224k year-on-year, although they are 107k above pre-pandemic levels.

What do the positive signs on inflation and GDP mean for business failure risk? Unfortunately, corporate insolvencies are a lagging indicator.  Both January and February 2024 saw higher numbers than the year before, so that the rolling 12-month figure for the whole of the UK has burst through the 27,000 barrier, another all-time record.  This is now 13% higher than in February 2023 and 46% above immediate pre-pandemic in February 2020.  A total of more than 30,000 for calendar 2024 is now a very real possibility.

Nevertheless, within these grim statistics there is a hint of a silver lining, as business rescues through Administrations are starting to recover at last.  February 2024 finally saw a higher number of Administrations than the equivalent month pre-pandemic in 2020.  At the same time, there are positive noises coming out of the UK Mergers & Acquisitions (M&A) market as buyers recover their appetite for deals and sellers finally adjust their price expectations to a sensible level. Funding for deals is also believed to be easier to access, unlike in 2023 which was an M&A year to forget.

So, 2024 has started better than many feared, with an improving trend that we can only hope continues.  Risk has not gone away, but nor have opportunities.  Much will depend on interest rate cuts later in the year and their potential both to ease pressure on companies with high debt levels and to boost our poor levels of business investment.”

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