Continued economic turbulence
I’m sure most would agree, that when it comes to the UK economy it feels like we’ve been in a constant state of flux over the past 15 years or so; the financial crisis and its aftermath, the coalition government, Brexit followed by numerous new PM’s and general elections, the pandemic, the Ukraine war followed by rampant inflation and more recently, another new government, all impacting the economy to varying degrees.
Unfortunately, it doesn’t feel like there’s much respite on the horizon. Recently we have seen the new government’s budget in October lead to an increase in the cost of doing business with an uplift in employers NIC (starting next month), minimal/no growth and a continued elevated BoE base rate and in turn borrowing costs providing a drag on the economy. Added to all this has been the re-election of President Trump, and the subsequent introduction of global trade tariffs. At the time of writing, the tariffs that are likely to impact UK exports are those applied to Aluminium and Steel and now possibly the automotive industry, however, this could change as the president has already shown a willingness to use the threat of tariffs to ‘encourage’ foreign governments to offer something in return, whether that be economic, or on matters such as defence and security.
One potentially beneficial unintended consequence of the increase in employers NIC is a likely continued softening of the labour market, which should help to reduce wage growth pressures and hopefully in turn have a positive impact on inflation. This, together with the Trump presidency leading to uncertainty and concerns over global growth, may end up inadvertently helping the government and businesses when it comes to future borrowing costs. Even with UK inflation forecast to peak at around 3.5%, both of these factors could encourage the BoE to reduce interest rates more than they currently anticipate during the year, with some economists now predicting a further three cuts during 2025, following the 25-basis point cut last month – BoE indicated in last weeks committee meeting that only a further two rate cuts are forecast.
These potential reductions would ultimately enable business owners to finance/refinance at more competitive rates which will reduce debt serviceability costs, thereby providing support for growth and investment plans, or alternatively helping businesses through challenging financial periods. Either way, Navigate is here to help. At Navigate we work with businesses across a variety of sectors to provide a wide range of funding solutions wherever they may be on their business cycle. If you or your clients have any funding requirements, please do not hesitate to contact us.
