... but hold the party poppers.
While a reduction in uncertainty is welcomed, there is a long way to go. In the last decade, the UK economy grew at the slowest pace of any decade since the Second World War with almost no increase in real wages. With the direction of the global economy uncertain – as disputes over trade weigh on growth and investment, together with concerns from many economists that the future Brexit settlement may act as a drag on UK expansion – business is unlikely to receive much support from the macro environment.
Consumer spending growth has slowed and the problems on the high street are well known. It is not clear what is driving consumer behaviour. Real wages and incomes have grown over the last year, employment has been steady and now appears to be growing again, and consumer confidence has not fallen significantly. We know that consumer indebtedness remains high by historic standards, and it may be that the general uncertainty has finally started to change consumer behaviour. This is an area to keep a close eye on in the coming months.
There may be some improvements in the economy, but it’s not time to pop the champagne yet. While we have some clarity, there are still significant unknowns – about the trade deal around Brexit, and the wider policy agenda of Government.
Over to you, Chancellor …
As a result of the Chancellor’s September statement, there is already a reasonable level of fiscal support in the forecast. All the signs are that this will be increased in the Budget on 11 March, as the Government seeks to demonstrate it is delivering on the promises made during the election campaign. The Chancellor needs to create the platform to encourage businesses to invest and consumers to spend responsibly.
Towns have emerged as a key policy area, primarily because they are seen as the likely political battleground for the future. I am pleased that EY’s work with the Centre For Towns has helped to increase the focus on this critical area. There is no doubt that we need to do more to level up the country, and improve the geographic balance of economic activity, but there are no easy solutions to an issue that has political, social and economic dimensions. The Budget is the perfect opportunity for the Chancellor to provide more detail on the Government’s plans.
… as business starts to consider the long term.
Significant uncertainty may still exist, but we can be certain that change is coming. The UK is leaving the EU, the new Government has talked of an ambitious programme, the global policy consensus is under real pressure, and demographics, technology and the climate emergency will all impact the economy in the coming years. These factors may come together in new ways: concerns over the climate may lead to further reductions in trade, and support for localism that boosts towns may be possible through deploying technology in new ways. The economic outlook is challenging and now is the time for businesses to think creatively about their long-term strategy and plans to deliver it.
