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Regional UK economic growth gap to widen, with Southern England ahead

Economic momentum is set to return to all parts of the UK between 2024 and 2027, but London and the South East are forecast to see faster GVA growth than the UK average.

4 Mar 2024 London GB Rob Joyce

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

Latest press releases

EY appoints new Transaction Diligence Leader in the North

EY has appointed John Divers, a Partner with over 20 years of experience in the deals market, as the firm’s new Manchester-based Transaction Diligence Leader for the North of England.

27 Mar 2024

EY strengthens South West Audit team with new Partner promotion

EY has strengthened its South West audit team with the promotion of Jemma Inker to Partner. Jemma originally joined EY in 2011 as an Audit Senior and has over 15 years’ experience.

20 Mar 2024

EY announces new Liverpool leader to spearhead growth

EY has announced Liz Jones as its new Liverpool Office Managing Partner. Liz is an audit Partner with over 25 years of experience and will be responsible for leading the firm’s growing team, based on the Albert Dock in Liverpool city centre.

14 Mar 2024

05 April 2024 | EY ITEM Club comments:

Construction PMI signals a rise in activity for first time in seven months

  • A construction Purchasing Managers’ Index (PMI) of 50.2 in March was in expansionary territory for the first time since August 2023. Alongside the expansion in services and manufacturing activity signalled by their respective PMIs, the latest construction index reinforces the EY ITEM Club’s expectation that the economy returned to growth in Q1 2024. 
  • There was also better news on cost pressures facing construction firms. The S&P Global survey’s measure of input prices rose at the slowest pace in three months. With inflationary pressures also retreating in the services sector, the latest survey evidence appears consistent with expectations that inflation will fall significantly in the coming months and that the Bank of England will begin to cut interest rates soon.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “March’s construction PMI showed the sector ending a six-month period of decline last month. An index of 50.2 was up from 49.7 in February and the first reading in expansionary, plus-50 territory since August 2023. Survey respondents cited lower borrowing costs and signs of a recovery in the wider economy as factors boosting construction activity. The fact that new orders rose at the fastest pace since last May bodes well for a further rise in the PMI over the next few months.

“Alongside evidence from the services and manufacturing PMIs of expansion in the economy’s other major sectors in March, the latest construction index adds to signs that the economy returned to growth in Q1 2024, following the mild technical recession in the second half of last year. The impact of public sector strikes will cap how much GDP grew in the first quarter, but the EY ITEM Club thinks a combination of lower inflation, rising real incomes and actual and prospective cuts in taxes and interest rates should see momentum in the economy continue to build this year.

“There was also better news in March’s S&P Global survey on cost pressures facing construction firms. The survey’s measure of input prices rose at the slowest pace in three months. With March’s services survey also indicating an easing in price pressures, the latest evidence is consistent with the expectation that inflation will fall significantly in the coming months and that the Bank of England should begin to cut interest rates soon.”  

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 April 2024 | EY ITEM Club comments:

House price recovery was interrupted in March

  • Halifax’s measure of house prices followed its Nationwide peer in showing a month-on-month fall in values in March, the first decline for five months. But with the foundations laid for property values to gradually recover from the modest correction of 2022 and 2023, the EY ITEM Club thinks March’s weakness is probably just a temporary pause for breath.
  • Quoted mortgage rates have fallen since the peaks last summer, real wages are rising again and unemployment is low. A recovery in mortgage approvals suggests these factors are boosting activity in the housing market, while very high inward migration offers another prop to demand. 
  • Still, quoted mortgage rates remain much higher than in the past and the Bank of England’s reticence about cutting borrowing costs has interrupted what had been a steady decline in rates offered by lenders. But the EY ITEM Club thinks it won’t be long before the Bank of England changes its tone and starts to cut rates, which should boost sentiment in the housing market and bolster the foundations for a return to sustained rises in house prices. 

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Halifax’s measure of house prices fell 1% month-on-month in March, ending five successive months of rising values. This followed a smaller 0.2% fall in Nationwide’s gauge, suggesting that the interruption in what had been a steady recovery in prices is more than just noise in the data.  

“That said, prices on the Nationwide measure were still slightly higher on a year-on-year basis. Meanwhile, the EY ITEM Club thinks March’s weakness in values will prove only a temporary interruption to a gradual rebound in property prices. Falling inflation and still-strong pay growth mean real wages are rising again, unemployment is very low, consumer sentiment has picked up and quoted mortgage rates are significantly down on the peaks of summer 2023. 

“These factors contributed to mortgage approvals in February rising to a 17-month high, while surveys of buyer and seller activity have also picked up. Very high inward migration alongside a continued under-supply of new houses is also underpinning property values. 

“Still, mortgage rates remain much higher than the post-financial crisis norm. And the Bank of England’s caution about signalling the prospect of interest rate cuts has been reflected in markets paring back expectations of how far the policy rate will be cut this year, interrupting a previous decline in mortgage rates. However, the EY ITEM Club thinks a further easing in underlying inflationary pressures means it won’t be long before the Bank of England changes its tone and starts to cut rates, which should boost sentiment in the housing market and reinforce the foundations for a return to sustained growth in house prices.”

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.

04 April 2024 | EY ITEM Club comments:

Services PMI dips, but remains firmly in growth territory

  • Although March’s services Purchasing Managers’ Index (PMI) of 53.1 was down from the previous month, it still pointed to a sector in expansion mode. The fact that the composite PMI of 52.8 remained close to February’s nine-month high also suggested that the economy is exiting its long-running period of stagnation. 
  • The S&P Global survey pointed to wage rises continuing to push up costs faced by services businesses. However, prices charged inflation rose at the slowest pace since last September as businesses faced increased competitive pressures and sought to boost demand. 
  • The EY ITEM Club thinks disinflationary forces mean inflation should fall below the Bank of England’s 2% target this month and is likely to remain sub-target for the rest of 2024, compelling the Monetary Policy Committee (MPC) to start cutting rates in the next few months. 

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “March’s services PMI of 53.1 dipped a little from February’s 53.8 and was the lowest since last November. But it was the fifth successive monthly reading above the 50 ‘no-change’ mark separating the S&P Global survey’s measure of expansion from contraction. With the output balance of March’s manufacturing survey increasing, the composite PMI of 52.8 was only slightly down from February’s nine-month high of 53.0, another indication that the economy is exiting its long-running stagnation. 

“Despite further growth in services output, the latest survey’s measure of price inflation eased to the slowest since last September. Pay rises continued to push up business costs, but competitive pressures and efforts to stimulate customer demand limited the pass-through to selling prices. 

“The EY ITEM Club thinks lower inflation expectations among workers and employers and a looser jobs market should press down on pay growth. And broader disinflationary forces, notably falling energy bills, mean inflation should fall below the Bank of England’s 2% target this month and is likely to remain sub-target for the rest of 2024, which could compel the MPC to start cutting interest rates by the early summer.”

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.

02 April 2024 | EY ITEM Club comments:

Recovery in mortgage demand continues

  • A further rise in mortgage approvals and a return to growth in net mortgage lending in February pointed to the recovery in UK housing market activity continuing. The prospect of interest rate cuts by the Bank of England should boost sentiment, although with cuts in the policy rate already priced in by markets, the impact on mortgage rates will probably be modest.  
  • Meanwhile, unsecured lending fell back in net terms, although this reflected a rise in repayments rather than lower gross lending. Looking ahead, the EY ITEM Club thinks an improved outlook for discretionary spending will likely prompt consumers to make more use of credit.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “An improvement in the mood music surrounding the housing market, aided by falling mortgage rates, easing cost-of-living pressures and a less unpredictable economic outlook, continued to make its presence felt in the latest mortgage data. Mortgage approvals rose in February for the fifth successive month, with 60,383 approved home loans marking the highest total since September 2022. Meanwhile, the lagged effect of the recovery in approvals since late 2023 finally translated into a rise in net mortgage lending. This stood at £1.5bn in February, the first positive outturn in three months and a 13-month high.

“A brighter economic outlook, helped by the prospect of further falls in inflation and, relatedly, the likelihood that the Bank of England will start cutting interest rates in the next few months, should fuel a further rebound in mortgage demand and housing market activity. But markets are already pricing in several rate cuts this year, as witnessed by a fall in the average rate on new mortgages in February to a seven-month low. A move by the Bank of England will probably therefore offer more support to the housing market via boosting sentiment, rather than by prompting a further significant fall in mortgage rates.

“On the face of it, a fall in net unsecured lending in February was a sign of continued consumer wariness. But the fall in net lending to £1.4bn from £1.8bn in January was more than accounted for by repayments rebounding after January’s decline. Meanwhile, gross lending picked up, and the EY ITEM Club thinks an improved financial outlook, stronger consumer sentiment, and households' relatively low debt levels mean more use of unsecured borrowing should contribute to a recovery in consumer demand 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.

02 April 2024 | EY ITEM Club comments:

Survey signals manufacturing returned to growth in March

  • March’s S&P Global manufacturing survey signalled the first rise in output in 13 months, while the headline Purchasing Managers’ Index (PMI) also rose above the 50 ‘no-change’ mark for the first time since July 2022. Better prospects for the UK and global economies, reflecting lower inflation and the prospect of rate cuts by central banks, means the EY ITEM Club thinks a recovery in manufacturing should become embedded this year. 
  • Developments in cost and price pressures were less positive. Disruption to global shipping continued to affect supply chains, contributing to input costs and selling prices rising in March. The recent rise in oil prices also poses a challenge to relatively energy-intensive manufacturing. But the EY ITEM Club thinks the strength of broader disinflationary pressures will still dominate the outlook for price movements in the economy.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Prior to March, the S&P Global survey had signalled a whole year of falling manufacturing output. But the latest survey saw the output balance move into expansionary, above-50 territory for the first time since February 2023. The headline PMI of 50.3 also rose above the 50-mark, in this case for the first time in 20 months. And the EY ITEM Club thinks a return to growth in the sector is likely to build. 

“Both at home and abroad, cost-of-living pressures are easing off the back of falling inflation. Globally, most of the major central banks should begin to cut interest rates over the next few months, easing what had been a squeeze from tighter financial conditions. Meanwhile, the potential boost to investment from increased digitalisation and investment in Artificial Intelligence (AI) technologies, and a move towards green energy generation and other efficiency measures should be positive for manufacturers. 

“However, according to March’s survey, cost and price pressures remain an issue for ‘the makers’. In particular, the price of inputs paid by manufacturers rose at the fastest pace in a year. This partly reflects continued disruption to shipping. Energy-intensive manufacturers are also relatively exposed to the recent rise in oil prices, currently sitting at a five-month high. However, the EY ITEM Club thinks broader disinflationary pressures, particularly from the unwinding of the rise in gas prices of recent years, should continue to dominate, offering a better outlook for manufacturers’ bottom lines.”

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.

02 April 2024 | EY ITEM Club comments:

House prices dipped slightly in March, but this should prove temporary

  • According to the Nationwide measure, house prices dipped slightly in March, the first month-on-month fall since last August. But annual growth picked up a little and the EY ITEM Club thinks the stage is set for property values to gradually recover from the modest correction of 2022 and 2023.
  • Real wages are rising again, unemployment is low and quoted mortgage rates have fallen since the peaks of last summer. A recovery in mortgage approvals suggests these factors are boosting activity in the housing market, while very high inward migration offers another prop to demand.
  • Still, quoted mortgage rates remain much higher than in the past and the Bank of England’s reticence about cutting borrowing costs has interrupted what had been a steady decline in rates offered by lenders. But the EY ITEM Club thinks it won’t be long before the Bank of England changes its tone and starts to cut rates, which should boost sentiment in the housing market and bolster the foundations for a return to sustained growth in house prices.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “What had been a consistent rise in the Nationwide measure of house prices since last summer was interrupted in March. Prices dipped 0.2% month-on-month, the first fall since last August. However, on a year-on-year basis, price growth picked up to 1.6% from 1.2%, marking a 15-month high.  

“The EY ITEM Club thinks the fall in house prices in March will prove only a temporary interruption to a gradual rebound in property values. Falling inflation and still-strong pay growth mean real wages are rising again, while unemployment is very low, consumer sentiment has picked up and quoted mortgage rates are significantly down on the peaks of summer 2023. 

“These factors contributed to mortgage approvals in January rising to a 15-month high, while surveys of buyer and seller activity have also picked up. Very high inward migration amid a continued under-supply of new houses is also underpinning property values. 

“Still, mortgage rates remain much higher than the post-financial crisis norm. And the Bank of England’s caution about signalling the prospect of interest rate cuts has been reflected in markets paring back expectations of how far the policy rate will be cut this year, interrupting a previous decline in mortgage rates. However, the EY ITEM Club thinks a further easing in underlying inflationary pressures means it won’t be long before the Bank of England changes its tone and starts to cut rates, which should boost sentiment in the housing market and bolster the foundations of a return to sustained growth in house prices.”

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.

28 March 2024 | EY ITEM Club comments:

National accounts reaffirm recession last year, but better times are likely ahead

  • The Office for National Statistics’ (ONS) previous estimate of a contraction in GDP in Q4 was unrevised in the latest National Accounts, meaning the economy is still thought to have ended last year in recession. But the EY ITEM Club thinks the downturn is probably already over and that economic momentum should build this year. 
  • Fast-falling inflation means real household incomes should continue to rise, building on gains in the last quarter of 2023. Lower energy bills will boost consumers’ discretionary spending power, as will the cut in National Insurance Contributions (NICs) which comes into effect in April.
  • Still, the cost of living remains elevated compared to a few years ago and prospective interest rate cuts will take time to feed through to stronger activity. But the economy’s long period of stagnation should start to fade.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “The ONS’ previous estimate that the economy ended 2023 weakly saw no change in Q4’s national accounts. The fall in GDP during Q4 was left unrevised at -0.3%. And with no revisions to previous quarterly estimates, including Q3’s contraction in output, the latest data reaffirmed that the economy was in recession over the second half of last year.

“The weak starting point for GDP this year means calendar-year growth in 2024 is likely to be limited to less than 1%. However, an acceleration in momentum this year remains on the cards. Fast-falling inflation will support further growth in real incomes, a development evident in Q4 2023 when household income rose 0.7% quarter-on-quarter, up from zero growth in Q3. Double-digit percentage falls in household energy bills in April and, as now seems increasingly likely, July, will also boost disposable spending power further. Meanwhile, next month’s cut in NICs will offer some modest support to post-tax incomes.    

“However, the cost of essentials such as food and energy remains much higher than a few years ago. The structure of the mortgage market and the impact of lower interest rates on the interest windfall received by savers also mean prospective rate cuts this year may prove a slow-burner in stimulating the economy. And households’ elevated appetite to save, with the saving ratio reaching a 10-quarter high of 10.2% in Q4, suggests a degree of caution among consumers. But the EY ITEM Club thinks 2024 will see an end to the stagnation which has characterised the UK economy over the last two years.”

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 March 2024 | EY ITEM Club comments:

February's retail weakness may prove temporary

  • A flatlining in retail sales volumes in February brought the previous month's rebound to a halt. But anecdotal evidence suggested unusually wet weather weighed on retail spending in some categories. Sales are on track to grow strongly in Q1, helping to drive a recovery in GDP. And the conditions remain in place for the retail recovery to continue this year.
  • A significant fall in inflation, led by decreasing energy prices, will boost household spending power. And the tax cuts announced in the Spring Budget will go some way to offsetting the drag on household incomes from previously announced tax rises.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Following a poor end to last year, retail sales volumes rebounded strongly in January. But February showed the recovery stalling. Sales recorded no growth last month, albeit flatlining marked a slightly better performance than consensus expectations of a 0.3% month-on-month fall. Although a strong increase in clothing sales meant non-food store sales saw a decent rise, this was offset by declines in purchases of food, household goods and fuel. 

“However, the EY ITEM Club wouldn't put too much weight on February's performance as a guide to the outlook for retailers. February was one of the wettest on record. This looks to have supported online spending but, according to anecdotal evidence received by the Office for National Statistics (ONS), reduced footfall in physical stores. And the fact that fuel sales had rebounded to an unusually high level in January meant some payback was likely the following month, a retreat which a rise in pump prices in February will likely have exacerbated. 

“The strength of January's retail performance means sales volumes still look on course to grow strongly in Q1 - another reason to think that the economy's contraction over the second half of last year was short-lived. And the EY ITEM Club thinks the ingredients are in place for a retail recovery to continue through this year. 

“Most importantly, real incomes will be boosted by a substantial fall in inflation, with the Consumer Price Index (CPI) measure likely to fall to below 2% in April and decline further in the second half of this year. The cut in National Insurance Contributions (NICs) announced in the Budget will also offer a modest boost to household spending power, if only partly offsetting fiscal drag from previous tax rises. And while the likelihood of interest rate cuts from the summer probably won't do much to boost spending this year, lower borrowing costs should improve consumer sentiment. On that note, the latest GfK survey showed consumers' confidence in their own financial situation in March hitting the highest levels in over two years.” 

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.

21 March 2024 | EY ITEM Club comments:

MPC takes a more dovish tone

  • The Monetary Policy Committee’s (MPC) latest interest rate decision took on a more dovish tone than expected. A majority supported keeping Bank Rate at 5.25%, but two members dropped their previous votes for a rate rise. The committee was also explicit that cutting rates would leave policy still in restrictive territory. And there were hints that it may not take much for some members currently favouring no change in policy to switch to supporting a rate cut.
  • The majority on the MPC cited stickiness in private sector pay growth and services inflation, a still tight jobs market and upside risks to the Bank of England’s inflation and pay growth forecasts in favour of keeping monetary policy on hold.
  • Still, the EY ITEM Club thinks the case for cutting rates soon remains strong. Lower energy prices mean inflation is likely to fall below the Bank of England’s 2% target in April and remain sub-target for the rest of the year. And timelier indicators of pay growth compared to the standard year-on-year measure have already fallen to a pace consistent with the 2% goal.
  • While the MPC’s cautious language and the effect of April's large rise in the national living wage on broader pay growth could mean rate cuts are delayed further, the EY ITEM Club thinks the force of events will push the MPC to start cutting Bank Rate in June.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Since the MPC last met in February, any surprises in the economic data have not been significant enough to prompt a reappraisal of the outlook for inflation or the economy. Indeed, in this latest March meeting, a majority on the committee continued to support keeping the Bank Rate at 5.25%. But the two members who had supported raising rates in February joined the majority in voting for no change in rates this time around.

“The majority on the MPC cited persistently high pay growth, the slow fall in services price inflation and upside risks around the Bank of England’s wage and inflation forecasts as reasons to keep monetary policy relatively tight. The committee as a whole also gave no explicit signal beyond February’s language that it is considering rate cuts, sticking to saying that policy needs to be ‘sufficiently restrictive for sufficiently long’, but that they ‘will keep under review for how long Bank Rate should be maintained at its current level’. 

“That said, the policy statement noted that there were varying views among MPC members on the extent to which risks from stubborn inflationary pressures had faded. This suggests that it may not take much for some of the majority to switch to supporting a rate cut. The statement also acknowledged for the first time that cutting rates would leave policy still in restrictive territory.

“The EY ITEM Club thinks the MPC may find it challenging to maintain a no-change position longer term. As of February, the level of consumer prices had seen little rise over the previous six months, meaning shorter-term measures of inflation are already below 2%. For example, on a three-month-on-three-month annualised basis, which better captures recent trends than the year-on-year measure, inflation in February was only slightly above zero. Lower energy prices point to annual Consumer Price Index (CPI) inflation falling below the Bank of England’s 2% target in April and remaining sub-2% for the rest of this year. While the MPC can cite base effects and core price pressures in arguing that headline inflation doesn’t give the full picture, it is that headline measure which the Bank of England is tasked with targeting. 

“Meanwhile, even those underlying drivers of inflation which have prompted the MPC’s concern are starting to look more benign. The large month-on-month rises in pay in the first half of 2023 will drop out of the annual measure over the next few months, meaning that headline wage growth should come down quickly by the summer. And timelier measures of pay growth have already slowed to a pace broadly consistent with the inflation target. On a three-month-on-three-month annualised basis, growth in private sector pay in January stood at 3.3%. 

“Still, following accusations that policymakers were behind the curve in tightening policy when inflation was heading up, the MPC may well decide it’s appropriate to exercise further caution in bringing rates down. Assessing the effect of April's large rise in the national living wage on broader pay growth offers another reason for inaction for the time being. But the EY ITEM Club thinks the force of events will compel the MPC to shift its position by early summer and start cutting Bank Rate in June.”

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.

21 March 2024 | EY ITEM Club comments:

More evidence of growth, but also sticky inflation

  • Although March's flash composite Purchasing Managers’ Index (PMI) dipped slightly, another 50+ reading offered more evidence that the economy has returned to growth in early 2024. The boost to real incomes from lower inflation and cuts in personal taxes mean that trend should continue.
  • The latest S&P Global survey was less positive on inflationary pressures, with growth in input costs still elevated and selling price inflation at an eight-month high. Following today’s survey, the EY ITEM Club thinks the Monetary Policy Committee (MPC) will decide to sit tight and keep the Bank Rate as it is this month.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Hopes that the economy may be breaking out of a long period of stagnation received further support from March's flash composite PMI. An index of 52.9, while marginally down from 53.0 in February, remained in growth territory for the fifth successive month. The dip in the composite PMI was more than accounted for by a fall in the flash services PMI to 53.4 from 53.8. However, the manufacturing output index rose to 50.2, signalling a return to growth in the sector for the first time in 13 months. 

“The PMI excludes the public sector, where output has been hindered by industrial action, so it may be overdoing the economy's strength in Q1. Nonetheless, there are good reasons why momentum in activity is improving and should continue to do so. Most important is the boost to real incomes from falling inflation. The cut in National Insurance Contributions (NICs) will also offer some support to household spending power.  

“The fact that the economy's contraction last year looks increasingly likely to have been short-lived is one reason why the MPC probably won't be in a rush to cut interest rates just yet. Another is concern that underlying inflationary pressures haven't yet eased sufficiently. March's survey is unlikely to calm that worry. The survey's measure of input cost inflation eased only slightly from February's six-month high, with respondents citing higher transportation costs and still-strong pay growth. And higher costs were passed through to prices, with growth in the latter the highest since July 2023. 

“All in all, evidence of healthier growth amid still-present inflationary pressures offers another reason to think the MPC will keep policy on hold when its next interest rate decision is 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.

21 March 2024 | EY ITEM Club comments:

The fiscal deficit continues to decline

  • Public sector borrowing in February continued to fall year-on-year and was consistent with the Office for Budget Responsibility's (OBR) forecast for a deficit of just over £114bn in 2023-2024 as a whole. However, the fiscal outlook beyond this year is less certain and may depend on the policies of the next government.
  • The Labour Party has said that were it to win the next general election, it would follow the current government's primary fiscal rule of having the debt-to-GDP ratio falling in five years' time. That commitment and the narrow margin of safety against meeting that rule would limit any potential new government’s room for manoeuvre, at least in terms of borrowing more for investment or other priorities.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “February was the fourth successive month to see a year-on-year fall in public sector borrowing. A deficit of £8.4bn compared with £11.8bn in February 2023, when government spending had been boosted by energy support payments. Alongside lower subsidies, spending on debt interest also fell on the year, as lower Retail Price Index (RPI) inflation cut the cost of index-linked debt. Meanwhile, growth in tax receipts picked up to a seven-month high, consistent with signs of more momentum in the economy. 

“February's deficit took borrowing in the current fiscal year so far to £106.8bn. The OBR has yet to publish monthly profiles consistent with its March Budget forecast, so it is difficult to be precise on how well the year-to-date outturn tallies with the OBR's expectations. But with data now available for 11 of the 12 months of the current fiscal year, borrowing in 2023-2024 looks set to come in close to the OBR forecast of £114.1bn.

“Beyond this year, the fiscal outlook is clouded by the chance of a change of government after the next general election.

“The Labour Party recently confirmed that should they form the next government, they would stick to the current administration’s primary fiscal rule of setting policy to ensure debt is falling as a share of GDP in the fifth year of the forecast. With the OBR forecasting only a narrow margin of safety in meeting that target, pursuing it would imply little room for manoeuvre for any potential new government, at least in terms of borrowing more to fund investment or other fiscal priorities. Whoever wins the next election, an immediate radical shift in fiscal policy appears unlikely at this stage.”

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.

20 March 2024 | EY ITEM Club comments:

Base effects drove a significant fall in inflation in February

  • February's decline in Consumer Price Index (CPI) inflation is likely to be the first of several significant falls over the next few months, as large base effects come into play. With energy bills set to decline by 12% in April, the EY ITEM Club thinks inflation could fall below the Bank of England’s 2% target next month, before declining further in the summer.
  • Most of the downward pressure on headline inflation is coming from a combination of base effects and falls in the more volatile categories. While services inflation is cooling, the measured pace at which it is declining means the Monetary Policy Committee (MPC) will probably want more time before it is comfortable cutting interest rates. 

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “CPI inflation slowed to 3.4% in February, down from 4% in January and the lowest rate since September 2021. This was a little below Bank of England and consensus expectations of 3.5%. February's fall was largely due to base effects, following large rises in food and services prices between January and February last year.

“Base effects will remain influential over the next couple of months and, along with a 12% fall in Ofgem's energy price cap, this should mean inflation falls to, or below, the Bank of England’s 2% target in April. Furthermore, although only a month of Ofgem’s new observation window has passed, lower wholesale gas prices point to another substantial fall in the energy price cap and household bills in July. So, there's a good chance that inflation declines well below 2% in the second half of the year.

“Still, most of the downward pressure on inflation this year will come from the more volatile categories. The MPC has made clear that it is more interested in what’s happening to services inflation, which it sees as a better guide to underlying pressures. January saw a modest downside surprise, largely because the annual change in the weights had magnified the downward pressure from the fall in air fares. This effect unwound in February, and the outturn of 6.1% year-on-year was in line with the MPC’s expectations. 

“Recently, several MPC members have said they want to see more evidence that inflation persistence is weakening before cutting rates. So, while February's inflation performance leaves us on track for policy to be loosened, it also fits with the idea that the MPC is likely to take a cautious approach. The EY ITEM Club expects the minutes of March's meeting – which will be published tomorrow – to reiterate that while the MPC expects to cut rates at some point this year, the first move is not yet imminent.”

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 Mar 2024 | Spring Budget 2024

Sarah Farrow, EY Partner, comments on non-dom tax changes announced in the Spring Budget 2024

“The abolition of the existing non-dom tax regime and plans to replace it with a residence-based test from April 2025, are moves to simplify the current remittance basis regime, which can be complex and difficult to navigate for taxpayers and did not attract capital to flow into the UK.

“Under the proposed new regime, non-residents who arrive in the UK, having not been UK resident in the previous ten years, will have a period of four years where their foreign income and gains are not taxable in the UK, even if they are brought to and spent here.

“After the initial four-year period, these individuals will pay UK tax on an arising, worldwide basis in the same way as any other UK resident.

“There are concerns that four years is a very short period of time in comparison to other countries with a similar regime, such as Italy, and may deter non-UK residents from coming to the UK in the first place.

“There will be transitional arrangements for existing UK residents who are currently claiming non-domicile status. This will include a 50% reduction in the foreign income subject to UK tax for two years for individuals who will lose the ability to use the remittance basis, and an ability to rebase assets to their 5 April 2019 value.

“There will also be an opportunity for these individuals to remit previously untaxed foreign income and gains during 2025-26 and 2026-27 at a much-reduced rate of 12%. The details of these transitional arrangements are yet to be shared, but they will be key in determining how many UK resident non-domicile individuals stay in the UK, and how many may leave given these changes.”

Nicholas Yassukovich, UK Financial Services Tax Partner at EY, adds:

“The non-domicile tax status has always been an important factor in attracting senior international talent to the UK – particularly in the banking and asset management sectors. The Chancellor’s decision to simplify and reform the non-domicile tax regime – rather than abolish it – is a sensible one. While the shortening of the time period to four years may make the UK less attractive when compared to more generous regimes such as those in Western Europe, the abolition of the remittance basis will be welcomed by some many foreign nationals who come to work in the City of London and currently have to keep earnings related to overseas business travel outside the UK.

"However, the wealth management and offshore banking service providers currently supporting the non-domicile community will undoubtedly be impacted negatively by this change, and will need to find new ways to maintain profitability by adding to their core offerings.”

Edited by Sarah Farrow

Partner, Ultra-High-Net-Worth, EY Private Client Services Limited

Has over 20 years’ experience specialising in international high-net-worth individuals. Lives with her husband and two teenage daughters. Enjoys exercising and going on long walks with her dog.

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

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

06 Mar 2024 | Spring Budget 2024

EY comments on changes to eligibility criteria for high net worth investors

Axe Ali, EMEIA Financial Services Private Equity & Venture Capital Leader at EY, comments on changes to the eligibility criterial for high net worth or sophisticated investors:

“The reversal of the previously proposed change to the eligibility criteria of a high net worth or sophisticated investors – while somewhat unexpected – is positive news for new and growing UK businesses.

“The proposals sparked significant debate when announced in January, when concerns were raised that many of the individuals who would fail to meet the higher threshold would have been from minority backgrounds and female. In addition to minimising diversity, this change would have also meant many angel networks and investment syndicates would have lost viable investors, and would result in a critical part of the ecosystem that supports growing and scaling UK companies shrinking.

“Today’s decision to revert to the previous criteria will be welcome news for the industry following months of consultations, and reflects the Government’s continued focus on boosting investment in new and innovative UK companies.” 

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 Rob Joyce

Manager, Media Relations, Ernst & Young LLP

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

06 Mar 2024 | Spring Budget 2024

EY comments on full expensing on leased assets and manufacturing support

Mark Minihane, EY’s UK Advanced Manufacturing and Mobility Tax Leader, comments on support for the manufacturing sector announced in the Chancellor’s Spring Budget:

“Following consistent calls and lobbying from industry bodies, today’s promise of full expensing for leased assets will be welcomed by businesses which would otherwise be placing a more significant reliance on banks and other lenders. However, this only comes into force when fiscal conditions allow, which many across the industry will be hoping happens soon.

“A package of £270m of support for British manufacturing was another positive announcement. The aerospace and automotive sectors were the ‘winners’ with zero-carbon aircraft and Electric Vehicle (EV) technology benefitting from some of this new funding.

“However, significant longer-term certainty around the distribution of the £4.5bn support package announced in the Chancellor’s Autumn Statement for Advanced Manufacturing still appears absent. Additional detail on this would help businesses tackle complex challenges associated with forward planning – particularly those in pursuit of substantial and sustainable 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.

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

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

06 Mar 2024 | Spring Budget 2024

EY comments on proposed extension of full expensing to leased assets

Chris Sanger, EY Tax Policy Leader, comments on the proposed extension of full expensing to leased assets, announced in the Chancellor’s Spring Budget:

“The Chancellor’s commitment to legislating to extend full expensing to leased assets responds to calls from cash-strapped businesses that are otherwise excluded from the incentive. Full expensing was a prized policy when made permanent at the Autumn Statement, as it was viewed as way to incentivise business investment in the UK over the long term. This proposed change would extend the benefit to companies that want to make significant investments but which are reliant on banks and other lenders to do so.

“Whilst the Chancellor said that this would only apply “when fiscal conditions allow”, his decision to publish legislation on the extension represents a clear commitment. Many businesses may see this step as a large down-payment on this policy and will likely expect its inclusion in a near-future Budget.”

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.

06 Mar 2024 | Spring Budget 2024

EY comments on proposed abolition of the Multiple Dwelling Relief

Russell Gardner, EY UK Real Estate, Hospitality and Construction Sector Leader, comments on the proposed abolition of the Multiple Dwelling Relief, announced in the Chancellor’s Spring Budget:

“The removal of the Multiple Dwelling Relief within the Stamp Duty Land Tax is likely to have far-ranging, and potentially unforeseen and unintended, consequences. One area of particular concern is that it could deter investment into purpose-built student accommodation. Universities are working hard to market themselves to international students, and purpose-built student accommodation is typically a key draw. Removing the relief could result in a tightening of the supply of purpose-build student accommodation, driving up the price of the available stock, which would, in turn, disproportionally impact less well-off UK students.

“While complete removal of the relief would address the alleged misuse of the Multiple Dwelling Relief, other options, such as excluding the Multiple Dwelling Relief for annexes, might better avoid these potential consequences.”

Edited by Russell Gardner

EY UK&I Real Estate, Hospitality and Construction Sector Leader

Head of Real Estate, Hospitality and Construction. More than 20 years' of experience advising on UK and European property transactions. Helping clients tackle challenges today for tomorrow's growth.

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

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

06 Mar 2024 | Spring Budget 2024

EY comments on measures to boost the UK film, TV and creative arts sector

Anna Fry, EY Partner, comments on measures to support the UK’s creative industries announced in the Chancellor’s Spring Budget:

“The 40% tax relief on business rates for film and TV studios will provide a boost for an industry which generated £125 billion in GVA for the UK economy in 2022. The business rate reduction will promote investment in new studio space and help unlock significant investment in the sector, enabling stalled developments to get back on track.

“The broadening of the audio-visual expenditure credit to include visual effects (VFX) at an enhanced rate for film and high-end TV is also a welcome development to increase the competitiveness of the UK for production. Previously the sector has struggled to attract the investment in VFX it needs to grow, with VFX often being applied overseas to otherwise UK produced content. However, today’s announcement will help to incentivise film makers to use home-grown talent and technology and encourage growth and investment in a vibrant sector. Additional tax credits for independent film makers will also help to stimulate the film making ecosystem as well as nurturing emerging talent.

“The Chancellor’s measures complement the government’s sector vision and package of incentives announced last year, which included funding for film and high-end TV and reform of the tax reliefs for creative industries which will help to grow the sector by a further £50bn. Taken as a whole, the UK offers a competitive package of benefits to film and TV makers looking to use the country for their next blockbuster.”

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

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

06 Mar 2024 | Spring Budget 2024

EY comments on cuts to National Insurance Contributions

Tom Evennett, EY UK&I Private Client Services Leader, comments on the cuts to National Insurance Contributions announced in the Chancellor’s Spring Budget:

“The reduction in the rate of employee National Insurance Contributions (NIC) from 12% down to 10% on income between the primary threshold and upper earnings limit which kicked-in from 6 January 2024 was doubled today with a further 2% cut by the Chancellor, effective from 6 April 2024.

“This takes the rate of employee NICs down to 8% in this range and is worth up to £754 for an individual employee earning in excess of £50,270. This results in total savings in NICs for individual employees in the 2024/5 UK tax year to just over £1,500 for the whole tax year where they earn more than the upper earnings limit.  

“The self-employed were also not forgotten in this move to reduce the overall tax burden on workers as the 2% cut was also made on Class 4 NICs. This moves the rate down from 8% to 6% and the £754 saving is equivalent for the self-employed where their profits are in excess of £50,270. This measure, together with the 1% cut announced in the Autumn Statement and the abolition of Class 2 NICs for the self-employed, should mean that the self-employed will benefit up to the tune of £1,323 for the 2024/25 tax year.

“Both these measures will put money back into the pockets of workers and alleviate some of the tax burden (the ‘fiscal drag’) that has impacted individuals due to the freezing of the income tax thresholds over the past few years.

“However, there was no cut to income tax rates, including the much trailed 2p cut in the basic rate of income tax, which means that individuals who do not pay national insurance (e.g. workers over state pension age and those with unearned rental and savings income) will not benefit from the measures announced today.”

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.

06 Mar 2024 | Spring Budget 2024

EY comments on the increased VAT Registration Threshold

Sarah Delaney, Indirect Tax Knowledge and Markets Lead at EY, comments on the increased VAT Registration Threshold for UK established businesses from £85,000 to £90,000:

“Today’s rise in the UK VAT registration threshold to £90,000 is an above-inflation increase, but leaves the threshold well below the £107,000 level that it would have been if it had risen with inflation since it was frozen at £85,000 in 2017.

“This increase should provide a helping hand for smaller companies bumping up against the limit and mitigate the risk of some companies taking steps to stay below the threshold – for example by closing for a couple of months. Lifting the threshold gives these businesses more room to grow, but ultimately passes the problem to those businesses trading around £90,000. Longer-term the government may need to consider a solution to help avoid this cliff edge effect.”

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

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

06 Mar 2024 | Spring Budget 2024

EY comments on R&D Tax Credits

Faye Ruffles, EY UK&I Partner, comments:

"With HMRC publishing additional guidance and timings for the R&D tax credit scheme over the last month, there was little left for the Chancellor to reveal at the Spring Budget. On Monday, businesses learned that the merged scheme would come into effect for accounting periods beginning on or after 1 April 2024. Given the newly merged regime will not distinguish between large and small businesses, this will mark another reduction in the specific tax relief provided to SME R&D, with the exception of smaller companies deemed to be 'R&D intensive'. Smaller companies may have preferred more time to plan for the impact of the merger. However, other businesses will likely be happy that the Budget contained no further changes to a regime which is already in a state of flux."

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

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

06 Mar 2024 | Spring Budget 2024

An Entrée Budget before the manifesto main course

Chris Sanger, EY UK Tax Policy Leader, comments on the Chancellor’s Spring Budget:

“The Chancellor’s Budget announcements included 14 tax cuts and 16 rises, but the two stars of the show – the National Insurance cut and the replacement of the Non-Domicile regime - had been heavily trailed in the days before. Whether these 30 measures meet the appetite of the electorate is yet to be seen - this Budget may come to be seen as a mere ‘entrée’ before a manifesto main course.

“Beyond National Insurance and the Non-Domicile regime, the Chancellor chose to cut tax sparingly, with two other big measures introduced: the fuel duty freeze which was fully expected, and the reform of Child Benefit onto a household basis. The remaining cuts were scattered broadly, including the just-above-inflation increase (ignoring the previous years of freezes) in the VAT threshold; the four percentage point cut in the rate of Capital Gains Tax on private dwellings (which apparently actually raises money for the Exchequer); additional relief for visual effects; and a brand new UK ISA.

“There was more on the tax rises, beyond the replacement of the non-domicile regime, with an extension of the Energy Profits Levy, abolition of both the Furnished Holiday Lets regime and Multiple Dwellings Relief, and the introduction of a new excise on vapes. When taken together with the increases in tobacco duty and parts of air passenger duty, the Budget had a feeling of ‘cleaning out the cupboard’.

“The Chancellor’s key measures will attract a lot of attention, but there were some notable gaps. On the so-called tourist tax (VAT on retail exports), the Government has merely welcomed further submissions following the OBR’s review. And on inheritance tax, the Chancellor was very quiet, having spent the cost of abolition on his National Insurance cuts instead.”

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.