Business News - 9 September 2024
A round up of the latest business news for our clients. Please contact us if you want to talk about how these updates affect your business. We are here to support you.
This update includes:
UK economic recovery
Labour’s negative tone
Tax rises on the horizon
UK economy recovery
The UK economy has gone from recession in the second half of last year to being the fastest-growing economy in the G7 in the first half of this year. The momentum has held up over the summer, with the latest Deloitte CFO survey, conducted in the immediate aftermath of July’s general election, showed a sharp drop in perceptions of external risk and rising levels of confidence and risk appetite.
The pace of economic activity picked up in July and August, according to the purchasing managers’ index, pointing to a continuation of the recovery into the third quarter.
Inflation dropped to just 2.2% in July and underlying or core inflation and wage growth eased, helping pave the way for the Bank of England to cut interest rates in August.
Labour’s mood music
Despite the good economic news, the new Labour government has struck a sombre tone on the economy. Over the summer the government warned of a £22bn ‘black hole’ in public finances, with the prime minister saying the budget on 30 October would be “painful”.
Mr Starmer said that those with the broadest shoulders should bear the heaviest burden, fuelling speculation that tax increases will exceed the £9bn of tax rises in Labour’s manifesto.
As an indication of what may lie ahead, the government announced that it plans to end winter fuel payments for the 10m pensioners who are not on means-tested benefits, a measure that will save £1.4bn this financial year.
Tax rises and pay rises…
Do newly elected governments in the UK have a history of raising taxes? Well, the Economist estimates that since 1978 British governments have increased taxes by an average of 0.5% of GDP, equivalent to £14bn today, in their first year in office. So be prepared.
The new government has offered an above-inflation pay increase to train drivers and doctors with backdated increases for some previous years. In late July the chancellor announced that most NHS workers, teachers, civil servants and members of the armed forces will receive above-inflation pay rises of 5.0% to 6.0%. Pay settlements in the private sector currently average 4.5%.
It’s going to be an interesting (and likely painful) first budget in the Autumn.
Source: Ian Stewart’s (Chief Economist at Deloitte LLP) weekly economics briefing.
