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Featured press releases

Bank lending to UK businesses forecast for <1% growth this year

UK bank-to-business lending is set to remain low this year, with growth of just 0.8% (net) forecast in 2024, according to the latest EY ITEM Club UK Bank Lending Forecast.

19 Feb 2024 London GB Victoria Luttig

Rising cost of debt could cost UK Plc £25bn

The rising cost of borrowing could result in a £20 to £25bn refinancing burden for UK Plc in the next three years, according to latest projections from EY.

7 Feb 2024 London GB Seetle Dool

Latest press releases

EY invests in new office as Leeds business pursues long-term growth

EY has announced that it is relocating to a new office in Leeds city centre, continuing the firm’s investment in its growing Yorkshire business. The new office, based in Wellington Place, is only a short walk from Leeds train station and combines a well-connected location with enhanced technology and facilities.

20 Feb 2024

EY comments on the government’s AI whitepaper consultation

Harvey Lewis, EY Partner, Consulting – Artificial Intelligence, comments: “The AI whitepaper response is a positive step in outlining the UK government’s ambition for AI regulation and the need to strike a careful balance between innovation and regulation

7 Feb 2024

EY comments on the government’s £45 million investment in the UK’s quantum sector

Lee Brown, Partner, EY Analytics & AI Lead, comments: “It is positive to see the government’s commitment and investment in quantum technology which will provide a welcome boost for the development of this nationally critical future technology.

6 Feb 2024

21 Feb 2024 | EY ITEM Club comments:

Fiscal headroom looks limited

  • January's public finances data, the last set before the Budget, showed a sizeable fiscal surplus and left borrowing in 2023-2024 on course to come in below the Office for Budget Responsibility's (OBR) forecast. However, the Chancellor's attention will be focused more on likely headroom against his fiscal rules. 
  • On that score, lower interest rates and stronger population projections than the OBR had assumed should allow some space for tax cuts. But investors reining back their expectations on interest rate cuts this year, a weaker-than-expected economy, and some fiscal downsides from lower inflation have cut the likely scale of any extra headroom.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “With self-assessment receipts due in January, the first month of the year tends to be a big one for tax receipts and typically sees the public finances running a surplus. January 2024 was no exception. Tax revenues exceeded public spending by £16.7bn. This was more than double January 2023's surplus of £7.5bn, when public spending was boosted by energy support payments, but smaller than the OBR's forecast of £18bn. The effect of lower Retail Price Index (RPI) inflation on debt servicing costs meant spending in that area came in under the OBR's projection again. But other government outlays rose faster than expected, and growth in tax receipts undershot.   

“January's outturn, combined with downward revisions to earlier months, means borrowing in 2023-2024 should come in below the OBR's forecast of £123.9bn. But with the Spring Budget approaching, the Chancellor's focus will be on how much headroom the OBR projects against his medium-term fiscal targets. On that issue, the market curve for interest rates over the next few years is lower than that adopted by the OBR in November, which should cut forecast spending on debt interest. And the OBR’s new forecast will incorporate the Office for National Statistics’ (ONS) new and bigger population projections which, all else equal, should raise projections for GDP, employment and tax receipts.  

“But against these positives, investors have recently reined back predictions of how much rates will be cut this year, narrowing the gap with the OBR's assumption. The starting point for the OBR's new economy forecast is weaker, given the level of cash GDP in Q4 2023 was almost 1% smaller than projected in November. And lower-than-expected inflation will weigh on revenue from the freeze in tax thresholds. On balance, the EY ITEM Club thinks the Chancellor will have room to manoeuvre, but major tax cuts are looking less likely.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

16 Feb 2024 | EY ITEM Club comments:

Retail sales rebounded in January

  • A strong rise in UK retail sales volumes in January made up for the previous month's significant fall. Despite January's rebound, retail's recent underlying performance still looks soft, but the outlook for this year is improving.
  • Lower inflation means real wages should continue to rise, while the prospect of cuts in energy bills will boost households' spending power. Frozen tax thresholds and rising mortgage payments for some mean it’s not all good news. But after two successive years of falls in retail sales, the EY ITEM Club expects a return to growth in 2024.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “December's surprisingly significant monthly fall in retail sales volumes and the noisy nature of the data series had made a rebound in January a likely prospect. Indeed, retail sales volumes increased 3.4% month-on-month, offsetting December's 3.3% decline. All the major retail sub-sectors, bar clothing, saw sales increase. 

“January's rise returned sales to their level of last November but meant volumes were still down 0.2% on a three-month-on-three-month basis, albeit this was the smallest fall on this measure since August 2023. And the prospect of a rise in mortgage payments for 1.5m households this year as they refinance on to higher rates, plus the drag from fiscal policy via the freeze in income tax thresholds, present barriers to a further revival in retail spending. 

“But the EY ITEM Club thinks the positives facing retailers should be sufficient to offset these challenges. Lower inflation and a tight jobs market mean real wages should build on recent rises. Falls in wholesale gas prices should translate into a sizeable cut in household energy bills in April, boosting spending power. And while markets have reined back expectations of how far interest rates may fall this year, the anticipation of cuts means the effect of tighter monetary policy has started to wane. If tax cuts were included in the Spring Budget, they could also provide some support. 

“After two successive years of decline in sales volumes, January's performance reinforces the EY ITEM Club’s expectation that 2024 should see a return to growth.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

15 Feb 2024 | EY ITEM Club comments:

GDP fell again in Q4

  • A 0.1% month-on-month fall in GDP in December, and downward revisions for September to November, meant a second successive quarterly contraction in Q4. Moreover, output barely grew over 2023 as a whole. But the EY ITEM Club thinks the ingredients are in place for a better performance this year.
  • Lower inflation means real wages are growing again, energy bills are set to fall markedly, and the prospect of rate cuts by the Bank of England has loosened financial conditions. The lagged effect of past rises in borrowing costs presents a headwind. Still, this shouldn’t be enough to stop momentum in activity building over 2024.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “The economy's performance at the end of 2023 proved more disappointing than expected. GDP fell 0.1% month-on-month in December, and the outturns for each month from September to November were revised down. On a quarterly basis, output was down 0.3% in Q4. And calendar-year growth in 2023 came in at only 0.1%, the lowest since 2009, bar the 2020 low caused by the pandemic. The expenditure breakdown for Q4 showed another fall in consumption, declining by 0.1% quarter-on-quarter, while Q3's fall was revised bigger. There were also quarter-on-quarter falls in government consumption and net trade, although business investment rose.

“Q4's poor outturn continued a theme which began almost two years earlier, as the level of GDP in Q4 was slightly smaller than in Q1 2022. However, this year should see an improvement. Recent activity surveys signalled a recovery in momentum at the start of this year and while industrial action in the health sector will hold back a revival in activity in Q1, the ingredients are in place for a return to growth. Lower inflation has contributed to real pay rising again, falling wholesale gas prices will feed through to household energy bills from April, and financial conditions have loosened in advance of expected Bank of England rate cuts. Moreover, the prospect of tax cuts in the Spring Budget means fiscal policy should become less restrictive. 

“For sure, time lags between changes in monetary policy and their effect on the economy mean rate cuts will take time to boost growth. And those same lags mean the effect of past rises in borrowing costs is still biting, with 1.5m households with fixed-rate mortgages set to experience a rise in monthly repayments in 2024. Nevertheless, on balance, the EY ITEM Club thinks the economy will steadily gather momentum. However, given the weak starting point for this year, that trend will be more apparent in terms of calendar-year growth in 2025 compared to 2024.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

14 Feb 2024 | EY ITEM Club comments:

Inflation surprises by holding steady in January

  • Consumer Price Index (CPI) inflation in January was unchanged at 4%, confounding expectations that base effects and a rise in the Ofgem energy price cap would likely prompt a second successive monthly increase. However, the EY ITEM Club continues to think inflation will fall to, or even below, the Bank of England’s 2% target over the next few months. 
  • The continued decline in wholesale gas prices points to energy bills falling even more significantly this year than previously expected. Data for the last few months shows wages growth falling fast. And as things stand, the inflationary impact of ongoing geopolitical tensions should be fairly limited. The ingredients remain in place for the Monetary Policy Committee (MPC) to start cutting interest rates in the next few months.  

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “January’s increase in the Ofgem energy price cap and unusually large falls in some services prices in January 2023, which weren’t repeated in the same month this year, meant forecasters had been almost unanimous in expecting inflation to rise again in January. However, the CPI measure was unchanged from December’s 4%. This compared with consensus predictions of an increase to 4.2% and the Bank of England’s forecast of 4.1%.

“Core inflation, which strips out the volatile food and fuel categories and provides a better guide to underlying price pressures, was also unchanged at 5.1% in January. Services inflation, which the Bank of England focuses on as a measure of domestically generated price pressures, ticked up to 6.5% from 6.4% - a little below the Bank of England’s forecast of 6.6% - and base effects mean the rise should only prove a blip.

“The EY ITEM Club continues to think that CPI inflation should fall to, and perhaps even below, the Bank of England’s 2% target over the next few months. Lower wholesale gas prices mean energy bills are on course to fall by around 15% in April when the Ofgem cap, which governs the typical household energy bill, is recalculated. And if the most recent decline in gas prices (which are now well below levels just prior to Russia’s invasion of Ukraine) is maintained, another double-digit percentage fall in bills could be on the cards for July.

“Lower energy prices will reduce inflation directly, as well as indirectly, by filtering through to firms’ cost bases. On that front, manufacturers’ input prices fell 3.3% year-on-year in January, the biggest decline in almost seven years, excluding the Covid pandemic period. And other pressures on consumer prices are looking less concerning. Annualised three-month-on-three-month growth in regular pay in December continued to slow, falling to only 2.2%, the lowest since early 2020, Covid distortions aside. Survey data has pointed to this trend continuing in early 2024, something which should bear down on services inflation.”

“Disruption to shipping due to geopolitical tensions presents a potential risk to inflation’s descent. But with shipping costs only a tiny part of the price consumers pay for goods, that inflationary risk looks modest at present. Overall, the latest inflation data should reassure the MPC that the time to start cutting interest rates is approaching. The EY ITEM Club continues to expect the first cut in Bank Rate in May.” 

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

07 Feb 2024 | EY ITEM Club comments:

Another sign of resilience in house prices

  • Following a robust rise in Nationwide’s measure of house prices in January, the Halifax measure indicated an even stronger performance, rising 1.3% month-on-month. This left the annual change in prices comfortably in positive territory which, in the EY ITEM Club’s view, represents another sign that last year’s correction in property values is likely over. 
  • Further decreases in quoted mortgage rates and a fall in the ratio of house prices to incomes have made properties more affordable, while unemployment remains low and the outlook for household finances has improved thanks to lower inflation and energy bills.  
  • That said, what looks to have been only a very modest decline in house prices in the current cycle will limit the scope for a further rebound in prices in the near future. The EY ITEM Club thinks 2024 will be a year of broad stability in property values.   

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Halifax’s measure of average house prices joined its Nationwide counterpart in showing property prices getting off to a robust start in 2024. But compared to a 0.7% month-on-month rise in Nationwide’s measure, the 1.3% increase in the Halifax gauge was even stronger. This was the fourth successive monthly gain and left prices 2.5% up on a year earlier, the fastest year-on-year increase since January 2023. 

“While the monthly data is volatile, January’s figures reinforce the EY ITEM Club’s view that the correction in property values seen in late 2022 and part of last year has likely ended. Swap rates, which are used to price fixed-rate mortgages, have fallen as market sentiment has swung away from anticipating further tightening of monetary policy towards pricing in cuts to Bank Rate during 2024. Although markets have swung back in terms of the likely magnitude of those cuts, as of early February, two-year and five-year swap rates were still 150-180 basis points lower than their peaks last summer. And lenders have passed on the bulk of the fall in their funding costs. In December, quoted interest rates on average two-year and five-year fixed rate 75% loan-to-value mortgages were 119bps and 103bps below recent peaks last July respectively. And the average rate on all new mortgages in December fell for the first time since November 2021.  

“Strong wage growth, combined with stagnant or slight falls in house prices, has made housing more affordable by reducing the ratio of prices to incomes. As valuations have become less stretched, interest from buyers has picked up. Mortgage approvals troughed at just over 44,000 in September, but recovered to almost 50,500 in December.

“However, while a relatively shallow house price cycle is good news in terms of maintaining financial stability and avoiding the experience of previous price corrections where large numbers of borrowers fell into negative equity, it is likely to limit the scope for house price growth in the near-term. And even if the official Bank of England policy rate aligns with the EY ITEM Club’s expectation of a total of 125 basis points of cuts this year, mortgage rates will remain significantly higher than for much of the last decade or so. As a result, the EY ITEM Club thinks this year will see house prices broadly flatline, rather than stage a significant rebound.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

06 Feb 2024 | EY ITEM Club comments:

Construction PMI adds to signs of a promising start to 2024

  • Although January’s construction Purchasing Managers’ Index (PMI) of 48.8 remained in contractionary, sub-50 territory, it was up from 46.8 in December and the highest for five months. Moreover, optimism among firms surveyed climbed to a two-year high, bolstered by lower borrowing costs. This reinforces the EY ITEM Club’s expectation that the economy should exit a long period of stagnation this year. 
  • The first rise in input prices paid by construction firms in four months was less encouraging, with higher shipping costs playing a role in the increase. But while geopolitical tensions are having knock-on effects across the economy, lower energy prices and easing wage growth should still deliver an outsized boost to energy-intensive and labour-intensive construction.    

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “The construction PMI rose for the third month in a row in January, reaching 48.8, its highest level since last August. This was still below the 50 ‘no-change’ mark separating the survey’s measure of expansion from contraction. But the S&P Global survey’s forward-looking balances pointed to the recovery in construction continuing. In particular, the survey’s measure of business optimism reached its highest level in two years. After an increase in January’s services PMI and better news from other surveys, including for consumer confidence, the latest construction reading reinforces the EY ITEM Club’s expectation that the economy began 2024 with increasing momentum.    

“The EY ITEM Club thinks there are good reasons to take a more upbeat view of construction’s prospects. The speed and scale of interest rate rises in recent years has been one of the chief headwinds to construction activity, tightening credit conditions, increasing debt costs and investment hurdle rates. This has weighed on economic growth, as well as demand for residential and commercial property. But the drag from this source now looks set to ease much sooner and faster than had been expected only a few months ago.  

“The fact that the price of inputs paid by constriction firms rose in January for the first time in four months was a less encouraging development. Higher prices for imports, driven by higher shipping costs, was cited as a reason, suggesting that the impact of geopolitical tensions is spreading across the economy. But with shipping costs representing only a tiny share of the price of finished products, it remains hard to see how the higher cost of transport could present a particularly significant inflationary risk. More importantly for the relatively energy-intensive and labour-intensive construction sector, energy prices remain much lower than in the recent past and wage growth is easing.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

05 Feb 2024 | EY ITEM Club comments:

Services activity began 2024 on a buoyant note

  • January's services Purchasing Managers’ Index (PMI) signalled the fastest rise in services activity since May 2023. The gain in the services index also lifted the composite PMI to an eight-month high. The coverage of the S&P Global/CIPS survey means it won’t have picked up the recent impact of strikes in the public sector. Nonetheless, the economy looks to have begun 2024 on a stronger note than it ended last year.
  • The latest survey also pointed to a fall in input cost inflation, which ran at the joint-slowest rate in nearly three years. Lower cost and price balances, combined with an upbeat set of readings for the survey's forward-looking indicators, are consistent with the EY ITEM Club’s view that inflation will fall back quickly over the coming months and momentum in economic activity should continue to build.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “January's final S&P Global/CIPS survey pointed to a further pick-up in private sector activity growth, with the composite PMI climbing to 52.9 from December’s 52.1, reaching its highest level since last May. The rise was driven entirely by a stronger performance from the services sector. January’s services PMI of 54.3 was up from 53.4 the previous month, representing an eight-month high. 

“The S&P Global/CIPS survey has been a relatively patchy leading indicator of the official measure of GDP in recent months, partly reflecting its only partial coverage of the economy. Notably, the fact that the survey excludes the public sector means it won’t have picked up the economic impact of the strike by junior doctors in January, so it may be overstating the economy’s strength last month. 

“Nonetheless, the economy looks to have begun 2024 on a stronger note than it ended last year. And there was also good news on the inflation front. According to January’s services survey, lower fuel costs and raw material prices contributed to input price inflation faced by services firms in January rising at the joint-slowest pace in almost three years. And output price growth eased to the weakest since last September.

“Lower cost and price balances, combined with an upbeat set of readings for the survey's forward-looking indicators, are consistent with the EY ITEM Club’s view that inflation will fall back quickly over the coming months and momentum in economic activity will likely continue to build. The latest survey should also offer the Bank of England some reassurance that the economy’s exit out of its recent stagnation may not necessarily present an inflationary threat.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

01 Feb 2024 | EY ITEM Club comments:

Rise in January’s manufacturing PMI wasn’t all it seems

  • Although January’s manufacturing Purchasing Managers’ Index (PMI) of 47.0 was slightly higher than the previous month, the increase was due to a rise in delivery times, as geopolitical tensions disrupted shipping. The S&P Global/CIPS survey’s measure of output saw no change, remaining firmly in contractionary territory. 
  • The PMI was a poor guide to the official measure of manufacturing output last year. Therefore, the EY ITEM Club thinks manufacturing probably isn’t as weak as surveys suggest.
  • Looking ahead, demand for goods should benefit from cost-of-living pressures easing and manufacturers will gain more than most from the recent decline in energy prices. But, as witnessed by a rise in the latest survey’s measure of input costs and prices charged, global instability continues to pose risks to manufacturers, as well as the outlook for inflation.    

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “January’s manufacturing PMI of 47.0 was slightly higher than the previous month’s 46.2. But the rise was accounted for by an increase in suppliers’ delivery times. This is normally interpreted as a signal of stronger demand, but in this case reflected disruption to shipping caused by geopolitical tensions. The S&P Global/CIPS survey’s measure of output was unchanged, remaining firmly in contractionary territory. 

“The EY ITEM Club thinks manufacturing probably isn’t as weak as the latest survey suggests. The PMI was a poor guide to the official measure of manufacturing output last year. Moreover, the sector enjoys some positives. An easing of cost-of-living pressures off the back of fast-falling inflation in the UK and abroad should support demand for goods. And relatively energy-intensive manufacturing will benefit disproportionately from the recent fall in energy prices. 

“That said, January’s survey showed inflation picking up in both input costs and prices charged, albeit remaining well below levels reached during 2022 and early 2023. This early 2024 rise was another by-product of ongoing geopolitical tensions, while global instability continues to pose risks to manufacturers, as well as the outlook for inflation. It’s also one reason why the Monetary Policy Committee will likely hold back from signalling immediate and significant interest rate cuts in its February decision, which will be announced later today.” 

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

31 Jan 2024 | EY ITEM Club comments:

More evidence that the house price correction is over

  • The Nationwide measure of house prices in January beat expectations by rising 0.7% month-on-month. This left average values down only 0.2% on a year earlier, reinforcing the EY ITEM Club’s view that last year’s correction in property values has probably ended. 
  • Further falls in quoted mortgage rates and a decrease in the ratio of house prices to incomes have made properties more affordable. Meanwhile, unemployment is still low and the outlook for household finances has improved thanks to lower inflation and energy bills.  
  • That said, what looks to have been only a very modest decline in house prices in the current cycle will limit the scope for a further rebound in prices in the near future. The EY ITEM Club thinks 2024 will be a year of broad stability in property values.   

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “According to Nationwide, house prices began 2024 on a strong note, rising 0.7% month-on-month. This was the second-fastest monthly increase in almost a year-and-a-half and left prices down only 0.2% on 12 months earlier, the smallest annual fall since January 2022.  

“While the monthly data can be volatile, January’s rise reinforces the EY ITEM Club’s view that the correction in property values seen in late 2022 and part of last year has likely ended. Swap rates, which are used to price fixed-rate mortgages, have fallen, as market sentiment has swung away from anticipating further tightening of monetary policy, instead pricing in significant cuts in Bank Rate during 2024. In January to date, two and five-year swap rates have been nearly 200bps lower than their peaks last summer. And lenders have passed on the bulk of the fall in their funding costs. In December, quoted interest rates on average two and five-year fixed rate 75% loan-to-value mortgages were 119bps and 103bps below recent peaks last July respectively. And the average rate on all new mortgages in December fell for the first time since November 2021.  

“Strong wage growth, combined with stagnant or slightly falling house prices, has made housing more affordable by reducing the ratio of prices to incomes. As valuations have become less stretched, interest from buyers has picked up. Mortgage approvals troughed at just over 44,000 in September, recovering to almost 50,500 in December.

“However, while a relatively shallow house price cycle is good news in terms of maintaining financial stability and avoiding the experience of previous price corrections where large numbers of borrowers fell into negative equity, it's likely to limit the scope for house price growth in the near-term. And even if the official Bank of England policy rate falls in line with the EY ITEM Club’s expectation of a total of 125 basis points of cuts this year, mortgage rates will still be significantly higher than for much of the last decade or so. As a result, the EY ITEM Club thinks this year will likely see house prices broadly flatline, rather than stage a significant rebound.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

30 Jan 2024 | EY ITEM Club comments:

Mortgage activity picked up modestly in December

  • Mortgage approvals recovered modestly in December but net mortgage lending decreased. A fall in quoted mortgage rates probably contributed to the uptick in approvals and the decline in rates looks to have continued into early January. But the scope for any further falls in the cost of home loans appears limited in the near-term.
  • Net consumer lending fell back in December after November’s rise. An improving consumer environment should support households’ appetite for unsecured debt, but lower inflation and its effect on growth in cash spending will likely have a contrary effect. 

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says:“The gradual recovery in mortgage approvals, which began in the autumn, continued in December. Approvals rose to a six-month high of 50,459 from 49,313 in November. However, November's outturn was revised down significantly, and December's figure was still almost a fifth down on the average level in 2022. Gross mortgage lending also picked up, although a larger rise in repayments meant net lending fell by £0.8bn. The decline in quoted mortgage rates of recent months likely aided December's uptick in mortgage activity.

“Announcements by lenders in recent weeks indicate that quoted mortgage rates may have fallen further in January, which should contribute to the ongoing recovery in housing activity into early 2024. However, swap rates have risen slightly since the end of last year and there's limited scope for further falls in the near-term. Current market pricing is broadly consistent with our forecast that the Bank of England will cut Bank Rate by 125bps in 2024. But there is a risk that rates could fall more slowly and if so swap rates could rise further. Combining this with still-stretched valuations, the EY ITEM Club expects approvals to remain some way short of the levels seen in the years either side of the pandemic.

“Meanwhile, after net consumer lending rose to a near-seven year high of £2.1bn in November, it fell back to £1.2bn in December, tallying with a weak retail performance. An improving consumer outlook, including a return to growth in real wages, should support demand for unsecured debt. But this will be mitigated by lower inflation and the associated impact on growth in average spend per transaction.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

29 Jan 2024 | EY ITEM Club comments:

A change of tone from the MPC, but no rate cuts yet

  • What appears set to be a significant cut in the Bank of England’s inflation forecast and a smaller downward revision to projections for pay growth should prompt a shift towards a more dovish tone from the Bank of England’s Monetary Policy Committee (MPC) in February’s meeting. But the EY ITEM Club thinks the MPC will be largely united for the time being in keeping rates on hold, with the first cut in Bank Rate likely to come in May.
  • Inflation in Q4 undershot the Bank of England's November forecast to a near-record extent and oil and wholesale gas prices are lower and sterling stronger than previously assumed. As a result, the Bank of England is likely to bring forward the timing of when it expects inflation to return to its 2% target to the spring of this year, in contrast to its previous forecast of the end of 2025.
  • But most MPC members will probably be wary about still-high services inflation and the consequences for pay pressures from April’s increase in the national living wage. The rise in shipping costs related to geopolitical tensions may also raise inflationary concerns. And the economic boost from recent falls in market interest rates and lower energy prices mean the Bank of England could be wary of the prospect of cutting rates. Overall, the EY ITEM Club expects Bank Rate to be kept at 5.25%.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “A change in the outlook for inflation since the MPC met last in December should prompt an adjustment in the Committee’s tone at its February meeting. In Q4, Consumer Price Index (CPI) inflation of 4.2% was well below the Bank of England’s November forecast, marking the second most substantial undershoot of an earlier projection in the last 20 years, and the conditioning assumptions used by the Bank of England in its forecast now appear too pessimistic. Gas futures prices for 2024 delivery are half the level assumed by the Bank of England in November. Oil prices are also lower, if to a smaller degree. And sterling’s trade-weighted exchange rate is around 2.5% higher than the Bank of England previously assumed, implying downward pressure on import prices.

“As a result, the EY ITEM Club expects the Bank of England to revise down its inflation forecast significantly in February's Monetary Policy Report. In November, the Bank of England expected CPI inflation to fall to the 2% target in late 2025. That date is likely to be brought forward to Q2 of this year. But while this should mean the MPC reins back previous ‘high for longer’ rhetoric around rates, the Committee will probably be circumspect about the prospect of cutting rates.

“One reason for this is that lower market interest rates and energy prices may mean the Bank of England is likely to take a more optimistic view of the economy’s prospects. In November, the Bank of England forecast that GDP would flatline this year and grow only 0.25% in 2025, predictions that now look too downbeat. A second reason is that most members on the MPC will likely want more reassurance that price and wages pressures are retreating to a target-consistent pace on a sustained basis before loosening monetary policy. 

“Services inflation (the MPC’s go-to measure of domestic price pressures) of 6.4% was up from 6.3% in November and still uncomfortably high. That said, it was 0.5ppts below the Bank of England's last forecast, while a measure of 'underlying' services inflation, which excludes accommodation services, airfares, and rents (components that the MPC thinks are not typically reliable indicators of trends in inflationary persistence), fell slightly. Disruption to shipping caused by geopolitical tensions presents an upside risk to inflation, which the MPC may want to make allowance for. And while the official measure of pay growth has continued to slow, the Bank of England’s own business survey has pointed to more stickiness in pay than the official numbers, which the MPC has put less weight on recently. Meanwhile, the Committee will probably also want to assess the direct and possible indirect effects of the near 10% increase in the national living wage in April before being satisfied that pay is receding as an inflationary risk.

“Overall, the EY ITEM Club expects the MPC to keep Bank Rate at its current level for now, before a first rate cut in May.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

24Jan 2024 | EY ITEM Club comments:

Flash PMIs suggest economy began 2024 on a better footing

  • The flash S&P Global/CIPS survey reported another rise in private sector activity in January. The survey's forward-looking indicators remained upbeat, which is consistent with the EY ITEM Club’s view that rapidly cooling inflation should help the economy gain momentum throughout this year.
  • While the strength of the composite Purchasing Managers’ Index (PMI) in January would usually be consistent with GDP growing at a decent pace, the effect of further NHS strikes at the start of this month is likely to have weighed on the Office for National Statistics’ (ONS) official measure of output.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “January's flash S&P Global/CIPS survey reported a third successive rise in the composite PMI, to 52.5 from 52.1 in December. January's slight increase was driven by a further rise in services activity, with the flash services PMI improving to 53.8 from 53.4. In contrast, the output balance of the manufacturing survey sunk to a three-month low of 44.9 from 45.5. The manufacturing PMI did rise, but this was a perverse consequence of longer vendor delivery times, reflecting global shipping delays caused by ongoing geopolitical tensions. The same issues contributed to a significant rise in costs for manufacturers. However, an easing in cost pressures for services firms meant prices charged by private sector businesses overall rose at the slowest rate since October.

“January's composite PMI would usually be consistent with GDP rising at a decent pace. But another round of junior doctor strikes at the start of this month means industrial action in the public sector – a factor not captured in business surveys – likely weighed on the ONS' official measure of output in January.

“Looking further ahead, the EY ITEM Club has become more positive about the economy's growth prospects this year. Inflation is set to fall back more quickly over the coming months, which will boost real household disposable incomes. Market interest rates have fallen as investors have increasingly priced in rate cuts by the Bank of England, meaning mortgagors now face a smaller increase in debt servicing costs upon refinancing than previously thought. Lower interest rate expectations also open the door for the Chancellor to reduce the pressure of tighter fiscal policy on households and businesses via tax cuts in the Spring Budget. As a result, the EY ITEM Club expects the economy to gradually gather momentum this year.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

More of a Budget than a Statement

Chris Sanger, EY’s Head of Tax Policy, comments:

“In what has been a clear shift in strategy since meeting three of the Prime Minister’s economic-related pledges, the Chancellor used his Autumn Statement to announce £80bn of tax cuts across a six-year period. The biggest element for businesses - making permanent the full expensing of capital investment - represents almost £30bn of cash flow cost and will be recovered by the Chancellor in the future. However, the cuts in National Insurance, both for the self-employed and employees, will cost £50bn over the same six-year period and are permanent.

The remaining scorecard nets to an increase in taxes of just over £600m. However, this includes some significant reliefs, such as the reduction in Business Rates for small and medium sized businesses, the one-year extension of the relief for Retail, Hospitality and Leisure businesses (together about £4.5bn) and the freeze on alcohol duty. These measures were funded by the introduction of a further element of the Global Minimum Tax rules (the Undertaxed Profits Rule), generating £1.6bn, and £4.6bn to be raised by HMRC from investing in Debt Management. 

All in all, this was much more of a traditional Budget than an Autumn Statement, perhaps indicating that the Chancellor felt he didn’t have time to wait for the Spring to begin nurturing growth. Indeed, the cut in National Insurance Contributions for employees will be introduced from 6th January, ensuring that it will be felt in pay packets at the start of next year and well ahead of an election.”

Edited by Chris Sanger

EY Global Government and Risk Tax Leader and EY EMEIA and UK&I (Tax Centre) Tax Policy Leader

Passionate about improving tax policy. Problem solver. Globetrotter

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

Newly announced Investment Zones boost for West & East Midlands

Chris Romans, EY’s Head of Tax in the Midlands, comments on the Autumn Statement announcement of Investment Zones:

“The announcement of new Investment Zones in the West and East Midlands is positive news for the region. These new zones are anticipated to generate £2.3bn of private investment and create 34,200 jobs over the next 10 years.

The West Midlands’ Investment Zone, which will cover Birmingham, Wolverhampton and Coventry, will focus on advanced manufacturing - a high-value sector, which is enormously important for both regional and UK growth. Similarly, the East Midlands’ Investment Zone will focus on advanced manufacturing and green industries across Nottinghamshire, Derby and Derbyshire with benefits felt across the wider region.

Both zones will play an important role in not only creating new jobs but also upskilling workers across the value chain. This news, in conjunction with the announcements made earlier on in the year during the Spring Budget around the freezing of rates for businesses moving into the zones, highlights the potential of investment for businesses in the region. We look forward to hearing more details about the two zones, and how they will benefit the region’s businesses.”

Edited by Chris Romans

Partner, EY Private and Midlands Tax Leader, Ernst & Young LLP

Over 30 years’ experience helping private and family businesses and their owners manage and solve complex issues and achieve their long term aims and objectives.

Edited by Chris Brown

Manager, Media Relations, Ernst & Young LLP

Experienced media relations specialist. Foster parent. Passionate about building and supporting safe spaces for LGBTQ+ communities.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

Autumn Statement delivers some demand and supply-side positives

  • The fiscal upsides of high inflation along with a tight grip on public spending gave the Chancellor room to make some notable tax cuts, including a 2% reduction in employees’ National Insurance and making corporation tax full expensing permanent.
  • The size of these ‘giveaways’ was modest relative to the planned fiscal tightening already in train. But today’s announcements should give some support to both the demand and supply sides of the economy, incentivising investment and work.
  • The Office for Budget Responsibility (OBR) has become gloomier on the outlook for GDP growth over the next few years, meaning its predictions are now more in line with other forecasts. Significantly higher government borrowing costs also have an adverse effect on the fiscal outlook.
  • But reflecting recent high inflation, nominal GDP and the cash tax base are expected to be permanently bigger than previously anticipated. The net result is a forecast of stronger tax receipts, falling real-terms public spending and more, if still-historically modest, headroom against the fiscal rules.
  • Meanwhile, the extent of the squeeze on public spending baked in by the Autumn Statement could be unrealistic to a certain degree, while public sector investment is set to fall consistently as a share of GDP over the rest of this decade. But given the next general election is probably less than a year away, these are challenges which will likely fall to the next administration to resolve. 

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “The upsides for the public finances from high inflation were central to the decisions announced in today’s Autumn Statement and the OBR’s accompanying economic and fiscal forecasts. The OBR downgraded its projections for real GDP growth over the next few years, bringing its forecast more in line with the consensus. Although forecast growth this year was revised up to 0.6% from the -0.2% expected in March, the economy is expected to now expand 0.7% in 2024 and 1.4% in 2025, versus 1.8% and 2.5% previously. That is very close to the EY ITEM Club’s latest forecast, although more optimistic than the Bank of England.

But the OBR thinks the drag on the public finances from weaker real GDP will be more than offset by the effect of higher-than-expected inflation and pay growth on nominal GDP and the cash tax base, plus the effects of a significant real-terms cut in public spending. On a like-for-like basis, the cash size of the economy at the end of 2027 is now forecast to be around 7% bigger than predicted in the spring.

Given the looming general election, it wasn’t surprising that the Chancellor made full use of a better fiscal outlook to loosen policy. Notably, employee National Insurance contributions will be reduced by 2 percentage points from next January, benefiting 27 million taxpayers, and the previously temporary 100% expensing for corporation tax is being made permanent. There was also a package of welfare reforms to encourage more people into work.

The size of ‘giveaways’ broadly matched the extra fiscal space created by the OBR’s new fiscal forecasts. The OBR made a significant cut to its forecast for public sector borrowing in 2023-2024 to 4.5% of GDP from 5.1% of GDP in March. But factoring in the Chancellor’s announcements, the predicted deficit in later years saw little move. Cumulative borrowing from the current fiscal year to 2027-28 is now expected to be £402.8bn, versus £406.4bn in March.

The Chancellor is expected to meet his fiscal rules around debt and deficits by more comfortable margins than in March, although the latest ‘giveaways’ mean those margins are still small by past standards. Public sector net debt is expected to fall by £13bn or 0.4% of GDP between the fourth and fifth year of the forecast (the reference period for the debt rule), compared with £6.5bn or 0.2% of GDP in March. And public sector borrowing in 2028-2029 of 1.1% of GDP undershoots the 3% of GDP limit set by the Chancellor by an extra £22.3bn or 0.6% of GDP compared to seven months ago."

Edited by Martin Beck

Chief Economic Advisor to EY ITEM Club

Economic Advisor. Analysing and monitoring the UK economy to help businesses understand economic issues and the environments they operate in. Contributing to the national economic debate.

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

Unlocking investment growth for UK companies

Axe Ali, EMEIA Financial Services Private Equity & Venture Capital Leader, comments on proposals to grow investment in UK companies announced at the Chancellor’s Autumn Statement:

“Today’s Statement highlights the government’s clear intent to boost growth in new and innovative UK companies. Establishing a Growth Fund within the British Business Bank will help to drive investment in domestic growth assets, and should fuel a stronger pipeline of companies starting, growing and listing within the UK.

Following the launch of the Mansion House Compact and the Mansion House Pensions Summit, which were supported by EY, the government is very clearly looking to future-proof investment in non-listed UK assets with the Venture Capital Fellowship. This will support long-term investment in UK companies through a growing cohort of venture capital investors in the UK.”

Edited by Axe Ali

EY EMEIA Private Equity and Value Creation Leader

Investor. Innovator. Passionate about financial services, FinTech, private equity and venture capital.

Edited by Victoria Luttig

Manager, Media Relations, Ernst & Young LLP

Part of the UK PR team, focused on financial services. Covers all things to do with banking, insurance and wealth and asset management. Love sports and travelling. Married and mum of two boys.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

Pension reform focus in Autumn Statement; consultations expected

Paul Kitson, EY UK Pensions Consulting Leader, comments on pension reforms announced at the Chancellor’s Autumn Statement:

 “Future pension reform was a key focus in the Autumn Statement, and a package of consultations are now expected.

Keen to address the challenge of “small pot” pensions, the government is launching a consultation to debate a ‘lifetime provider’ model, which would allow individuals to keep their existing Defined Contribution (DC) pension scheme when they change employers. While a simpler process for the employee, this may significantly disrupt the current workplace pensions model if there are not careful changes made to the current ecosystem.

The government will also launch a consultation on a new role for the Pension Protection Fund (PPF) – a significant shift that would see the PPF act as a consolidator for 'unattractive' Defined Benefit (DB) schemes. Crucial to the consultation will be understanding how the PPF would interact with the thriving pension buy-out market. This is likely to be the subject of much debate over the coming months.

Finally, a consultation to make it easier for employers to access surplus in DB pension funds was also announced, alongside a drop in the tax on return of DB surplus from 35% to 25% from April. However, without the ability to access surplus sooner, the tax change is unlikely to impact many funds and sponsors in a meaningful way in the short-term."

Edited by Victoria Luttig

Manager, Media Relations, Ernst & Young LLP

Part of the UK PR team, focused on financial services. Covers all things to do with banking, insurance and wealth and asset management. Love sports and travelling. Married and mum of two boys.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

Global Minimum Tax – adding the final piece

Chris Sanger, EY’s Head of Tax Policy, comments on the Global Minimum Tax provisions referenced in the Chancellor’s Autumn Statement:

“The Autumn Statement saw the Chancellor confirm the last element of the OECD’s Global Minimum Tax provisions - the so-called Under Taxed Profits Rules. The OBR, whilst admitting that the costings on this are “highly uncertain”, has ascribed £2.8bn of additional UK annual revenue by 2028-29. The largest element (£1.3bn) is expected to come from the multinationals that will default to paying tax in the UK, instead of investing in other jurisdictions with lower rates and having to top up the tax on those profits to 15%.

As the Office for Budget Responsibility (OBR) noted, the costing of this measure is highly uncertain and will be dependent on what other countries do. The Chancellor is betting that, by increasing taxes in the UK, the UK will become more attractive. While that’s not the traditional relationship between tax and attractiveness, the Chancellor is relying on the fact that other countries will follow suit with the minimum tax and so businesses won’t be tempted away from the UK.

For many UK multinationals, the focus is likely to be on the complexity of the calculations involved and the intensive data requirements, much of which has been driven by the international agreements made in Paris. Notwithstanding that this will be a global phenomenon, many may see the increase in complexity and costs as diverging from the Chancellor’s earlier commitment to tax simplification.”

Edited by Chris Sanger

EY Global Government and Risk Tax Leader and EY EMEIA and UK&I (Tax Centre) Tax Policy Leader

Passionate about improving tax policy. Problem solver. Globetrotter

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

Tourist VAT – shoppers will need to ‘wait and see’ in the Spring Budget

Chris Sanger, EY’s Head of Tax Policy, comments on VAT-free shopping referenced in the Chancellor’s Autumn Statement:

“Page 95 of the Autumn Statement offers a glimmer of hope for those campaigning to bring back VAT relief for tourists shopping in the UK and taking goods home. While the Chancellor did not confirm the relief’s return, the documentation says that ‘the government will continue to accept representations and consider this new information carefully, alongside broader data.’ This may suggest that the Chancellor is tempted to reintroduce VAT-free shopping but can’t quite afford to yet. We may see more activity on this as we approach the Spring Budget, but unfortunately for many, not in time for Christmas.”

Edited by Chris Sanger

EY Global Government and Risk Tax Leader and EY EMEIA and UK&I (Tax Centre) Tax Policy Leader

Passionate about improving tax policy. Problem solver. Globetrotter

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

Buy now, pay later, says the Chancellor as he makes Full Expensing permanent

Chris Sanger, EY’s Head of Tax Policy, comments on the permanent Full Expensing relief announced in the Chancellor’s Autumn Statement:

“In what the Chancellor described as ‘the biggest permanent tax cut in modern British history’, we saw the provisions of Full Expensing made permanent. This brings forward tax relief that would otherwise be spread over the life of the investment.

This measure will be welcomed by businesses with significant, multimillion pound investment plans, as the relief should reduce borrowing costs and enable projects to be brought forward earlier. These companies may have previously been put off investing in the UK, believing that the original three year Full Expensing period may have been finished by the time their organisation committed to making such significant investment decisions. Permanent Full Expensing can therefore be expected to drive further long term business spend in the UK. The Chancellor expects this measure to generate £20bn per annum of additional investment over the next decade.

However, this is a “buy now, pay later” benefit, as relief provided today means less relief in the future. As such, whilst for capital-intensive businesses this may partially mitigate the effect of the UK’s recent Corporation Tax rate rise, businesses that are not capital intensive, or spend less than £1m on capital investment a year, will find this of little benefit. These companies will be looking to the Spring Budget for measures that demonstrate the UK is open to their types of business too.”

Edited by Chris Sanger

EY Global Government and Risk Tax Leader and EY EMEIA and UK&I (Tax Centre) Tax Policy Leader

Passionate about improving tax policy. Problem solver. Globetrotter

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

‘Making work pay’

Tom Evennett, EY UK&I Private Client Services Leader, comments on the National Insurance cuts announced in the Chancellor’s Autumn Statement:

“Having raised substantially more through frozen income tax thresholds over the past few years than originally envisaged, the Chancellor was in a generous mood with a 2p cut in the main rate of Class 1 employee national insurance contributions (NICs) in January. This is worth £188 to April 2024 for someone earning £60,000 and £753 for someone earning £60,000 in the 2024/5 tax year.

The Chancellor was keen to ensure that the self-employed also benefited from this early Christmas present and so has abolished Class 2 NICs for the 2024/5 tax year, saving self-employed individuals £192 for the year. In addition, there is a 1% reduction in the main rate of Class 4 NICs from April 2024, worth £377 for an individual with a profit from their self-employed business of £60,000.

Both of these changes will put money back into pockets before a general election. However, the measures don’t fully balance out the fiscal drag of the frozen allowances that people have experienced over the past few years and going forwards.” 

Edited by Tom Evennett

EY UK&I Family Enterprise Leader; Partner, Private Client Services, Ernst & Young LLP

Advises UHNW individuals, families and entrepreneurs, and private offices and wealth structures in the UK and globally. Avid follower of Crystal Palace Football club.

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

Retail Business Rates

Amber Mace, UK&I Consumer Products & Retail Sector Leader, comments on the Autumn Statement 2023 and its impact on the retail sector.

"Not all the Christmas wishes of the Consumer Products and Retail sector were met, but there was more included than many expected. Making the "full expensing" regime permanent will be a welcome announcement, especially for the capital intensive Retail estates.  With Consumer Products groups needing to invest heavily in innovation, there was also welcome news in relation to the UK’s research and development regime and its application to subcontracted work overseas.

Hopes for a freeze on business rates were partly met with the extension of the current 75% retail, hospitality and leisure business rates relief for eligible properties through 2024-25. However, with the standard rate multiplier increasing in line with Consumer Price Inflation (CPI), this will likely mean an increase in business rates for large businesses -  a burden that we know falls disproportionately on the retail sector. And whilst there are reductions in employee national insurance contributions that will give consumers more money to spend; the increase in the national living wage will also bring extra costs to the sector.

What wasn’t included? Many had hoped to see the introduction of duty-free shopping. The Government acknowledged representations it has received in relation to the VAT Retail Export Scheme but made no commitment for this to be introduced. 

And finally, alcohol duty was frozen until August next year. The threat of passing increased duty onto those enjoying a drink over Christmas should go up the Chimney with Santa!”

Edited by Amber Mace

EY UK&I Market Segment Leader - Consumer Products & Retail (CP&R)

Authentic, collaborative and inclusive leader. Mother of three. Runner and cold water swimmer.

Edited by Chris Brown

Manager, Media Relations, Ernst & Young LLP

Experienced media relations specialist. Foster parent. Passionate about building and supporting safe spaces for LGBTQ+ communities.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

ISAs

Stuart Chalcraft, EY Tax Partner, comments on the simplification of ISAs announced at the Chancellor’s Autumn Statement:

“The measures announced in today’s Statement on Individual Savings Accounts (ISAs) should boost flexibility in the market, providing a gateway to more investment options for individual savers while also driving growth in the UK equity market. Overall, while these measures will be welcomed, providers may see an increase in compliance costs as a result of monitoring the additional investment options. Despite hopes of an increase in annual limits, the government confirmed a freezing of limits across the full range of ISAs at current levels for 2024-25.”

Edited by Victoria Luttig

Manager, Media Relations, Ernst & Young LLP

Part of the UK PR team, focused on financial services. Covers all things to do with banking, insurance and wealth and asset management. Love sports and travelling. Married and mum of two boys.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

Business must wait for details of a UK CBAM

Mark Feldman, EY UK&I Sustainability Tax Leader, comments on the reference to a UK Carbon Border Adjustment Mechanism (CBAM) in the Chancellor’s Autumn Statement:

“The Chancellor did not take the opportunity to clarify the Government’s position on a Carbon Border Adjustment Mechanism (CBAM) and the only reference was found in the Autumn Statement documentation, which referenced the need to take action to mitigate the risk of carbon leakage to ensure the UK Emissions Trading Scheme (ETS) remains effective. UK manufacturers of carbon-intensive products, such as steel, have been eager for further details on what a prospective UK CBAM could look like since the Government’s Carbon Leakage consultation closed in June 2023. The Government will publish its response on that consultation “shortly.

In the meantime, the EU CBAM came into effect from 1st October 2023 and with no details revealed about a UK equivalent, manufacturers will continue to face uncertainty and a lingering risk that their UK sales could be undercut by products manufactured overseas by competitors that don’t face the same carbon costs.”

Edited by Mark Feldman

EY UK&I Sustainability Tax Leader

Trusted advisor. Inclusive team-builder. Tax pragmatist. Always learning. A Lean Six Sigma Black Belt.

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

‘Grid connectivity is crucial for UK’s renewable ambitions’

Lee Downham, EY UK&I Energy & Resources Leader, comments:

"Renewable energy developers will have welcomed the Chancellor’s commitment to cut grid connectivity delays by 90%. In November it was revealed that the UK has fallen three places and is now ranked seventh in EY’s biannual ranking of attractiveness of renewable energy investment markets, the EY RECAI (Renewable Energy Country Attractiveness Index). Grid connectivity speeds are a concern for developers, as current years-long waiting times are delaying the pace at which projects can begin generating power and revenue. Ultimately developers need to feel that prospective projects will offer a viable, timely return on investment if they’re to contribute capital to the UK’s clean energy infrastructure."

Edited by Lee Downham

EY UK&I Energy & Resources Market Segment Leader

Advising energy clients on strategic transformations since 2004. Passionate about cycling, wine and family (not in that order!).

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

£4.5bn support package for Advanced Manufacturing 

Mark Minihane, EY’s UK Advanced Manufacturing and Mobility Tax Leader, comments on support for Advanced Manufacturing announced in  the Chancellor’s Autumn Statement:

“Today’s announcement from the Chancellor confirmed funding of £4.5bn for eight manufacturing sub-sectors within the automotive and aerospace industries, starting in 2025/26 and lasting for five years. This is a significant cash injection to help continue driving the development of cutting-edge technology and to support the UK’s transition to net zero.

The Autumn Statement documents released today claim this funding could support around £2bn of additional business investment per year in UK manufacturing over a 10-year period. There is also the promise of the long-awaited publication of the Advanced Manufacturing Plan and UK Battery Strategy, which will undoubtedly be welcome news across the sector.

The Government also announced a £960m Green Industries Growth Accelerator (GIGA), which will support investments in manufacturing capabilities for clean energy sectors, as well as three new regional investment zones in the West Midlands, East Midlands and Greater Manchester. Combined, these measures send a clear message of support for the UK’s Advanced Manufacturing sector.

There are plenty of positives to be taken from today’s announcements. However, favourable conditions are also being created in competing markets through much bigger support packages - such as the USA’s Inflation Reduction Act and the EU Green Deal. Only time will tell as to whether this latest injection of investment will be enough for the UK to retain its crown as a world leader.”

Tax implications for Advanced Manufacturing and Mobility businesses

James Wright, Tax Director in EY’s Advanced Manufacturing and Mobility team, said:

“The Advanced Manufacturing and Mobility sector continues to call for a consistent and supportive fiscal environment to allow businesses to plan and innovate over long expenditure cycles. The Chancellor had limited wiggle room on tax cuts going into today’s announcement, despite a reduction in inflation figures this week.

The confirmation that full expensing, which allows a 100% tax deduction on qualifying expenditure, is becoming permanent, will undoubtedly be welcome news - particularly for businesses with long capital expenditure cycles.

Support was also announced in a bid to bolster Research and Development (R&D), with the merged R&D scheme coming into effect for accounting periods beginning on or after 1 April 2024. This comes with a reduction in the notional tax rate applied to the R&D Expenditure Credit (RDEC) under the merged scheme, meaning an effective post-tax RDEC rate of 16.2%. 

There have also been shifts in what can be claimed, so manufacturing groups will need to consider areas such as subcontracted costs, as well as the fact that it will be possible to claim for subsidised or grant-funded projects. International groups with overseas R&D footprints will also need to consider overseas costs in claims as these will cease to qualify for R&D claims from April 2024. For start and scale-up businesses in the more generous ‘SME R&D-intensive regime’, the intensity threshold will reduce from 40% to 30%, allowing more SMEs to benefit from 14.5% payable credit.

For employees in the sector, the main rate of Class 1 National Insurance Contributions (NICs) will be cut from 12% to 10% from 6 January 2024, which is a marginal boost to the labour force and spending power. As this is collected via Pay As You Earn (PAYE), businesses will need to bring systems up to date accordingly.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

Support for the automotive sector a helpful step, but will it be enough?

David Borland, EY UK Automotive Leader, comments on support for the automotive sector announced in the Chancellor’s Autumn Statement:

“Amongst the 110 measures announced in the Chancellor’s Autumn Statement were several key initiatives that will provide direct support to the automotive industry. A £2bn support package to bolster zero emission vehicles, as well as their batteries and supply chains, is a sign of confidence in the sector. Additional measures included full expensing for capital expenditure, an increase in the number of engineering apprenticeships and a study on how autonomous vehicles and mobility can deliver growth.

Following a period of sustained growth for the UK’s auto sector, with 15 consecutive months of growth in new car registrations, a transition towards cleaner and greener transport is a priority that is now growing in importance for automotive businesses. Despite this ambition, the market share of Battery Electric Vehicles (BEVs) has plateaued, with EY’s latest Mobility Consumer Index highlighting that upfront purchase costs, a lack of charging stations and expensive charging/running costs are deterring consumers from making the Electric Vehicle (EV) switch. These challenges should be prioritised within public and private investment.

Although it is likely to be gratefully received by the UK’s auto sector, the Government’s support package is unlikely to solve all of the  challenges facing automotive businesses in the UK. The sector is navigating regulatory changes linked to the Zero Emissions Vehicle (ZEV) Mandate and Rules of Origin requirements, as well as ongoing economic headwinds. Indeed, the USA’s Inflation Reduction Act is a much larger support package by comparison, highlighting the magnitude of the UK’s continuing challenge to be a world automotive leader on a consistent basis. While today’s announcement is a much-needed step towards that, it needs to be part of a broader industrial strategy if the nation’s auto sector is to continue competing among the key players on the global stage.”

Support package welcomed, but it won’t solve disconnect between regulatory policy and business objectives

Maria Bengtsson, EY UK Electric Vehicle Lead, said:

“While a support package pledging significant funding into zero emissions automotive investment is a step in the right direction, it appears unlikely to address a key dilemma currently facing Original Equipment Manufacturers (OEMs). Specifically, the Internal Combustion Engine (ICE) vehicle sales ban was pushed back to 2035 recently, but the Zero Emissions Vehicle (ZEV) Mandate is still set to begin penalising OEMs if they don’t meet EV targets from 2024.

There are currently no public plans for this to change, leaving OEMs in a position where many of their customers have been de-incentivised to switch to a ZEV sooner rather than later, while their objectives for selling ZEVs are being ramped up at pace.

Therefore, while this announcement will undoubtedly go some way towards helping support the UK’s transition towards cleaner and greener transport, it’s unlikely to provide an immediate and comprehensive fix.

With EV charging infrastructure continuing to pose difficulties for the UK’s progress towards wide-scale EV uptake, the Government’s plan to speed up access to the national grid as part of their 110 growth measures is a welcome announcement. Electrical grid capacity is a critical piece of the puzzle as the UK looks to roll out more accessible and reliable chargers.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

22 Nov 2023 | Autumn Statement 2023 - EY comments:

Quantum Missions

Lee Brown, Partner, EY Analytics & AI Lead, comments on Quantum Missions announced as part of the Chancellor’s Autumn Statement:

“The Chancellor’s announcement on Quantum Missions – the long-term outcomes to help accelerate the development and application of quantum technologies - will provide a welcome boost for the development of this nationally critical future technology. The UK is well placed to scale up quantum technologies and the Chancellor’s announcement should help encourage private investors to make the required commitments into the sector.

A full-scale quantum computer has the potential to be massively disruptive in areas from cyber-security to chemistry as well as intersecting with current trends like AI, however, quantum infrastructure – all of the various hardware that goes into the ‘Quantum Computer’ – is not currently being manufactured in large quantities. This is because the global market is much smaller than for equivalent mainstream computing hardware, and the use cases for those quantum technologies that currently exist are limited.

However, the UK has a very active research and development environment related to quantum computing technologies, an experienced telecommunications and cybersecurity base, and relevant industrial players – meaning the key ingredients for commercial success are in place once businesses are ready to develop and progress their quantum strategies.”

Edited by Lee Brown

Partner, Consulting, Ernst & Young LLP; Data and Artificial Intelligence Leader

Purpose-driven leader. Data geek. Blackburn fan. Father of three.

Edited by Seetle Dool

Senior Manager, Media Relations, Ernst & Young LLP

Highly experienced media relations specialist. Mum of two. Passionate about diversity.