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Featured press releases

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

22nd consecutive month of growth for new car registrations, but challenges persist

New car registrations saw a 22nd consecutive month of growth in May, with a total of 147,678 sales, leading to a minor but important uplift of 1.7% year-on-year. The UK auto industry took another step closer to reaching a remarkable two years of consistent growth

5 Jun 2024

Gender gap is narrowing in Gen Z adult sports engagement

The gap between female and male engagement in sport is narrowing, with Gen Z adult female engagement figures on the rise, according to the EY Sports Engagement Index.

3 Jun 2024

41% of FTSE Retailers have issued a profit warning in past 12 months

UK-listed companies in the FTSE Retailers sector issued seven profit warnings in Q1 2024, two more than the same period (January-March) in 2023, according to EY-Parthenon’s latest Profit Warnings report.

20 May 2024

12 June 2024 | EY ITEM Club comments:

GDP on track for solid growth in Q2

  • UK GDP was flat in April, as lower output in the manufacturing, construction, and consumer-facing services sectors was offset by broad strength elsewhere in the services sector. Some of the drags on activity in April were driven by one-off factors, which the EY ITEM Club expects will unwind. Looking through this volatility, the EY ITEM Club still thinks GDP is likely to grow at a decent pace in Q2.
  • Looking further ahead, rising real incomes and consumer confidence suggest the economic recovery should become more firmly entrenched as the rest of the year progresses. Still, tighter fiscal policy and the lagged passthrough of past interest rate increases will likely mean the UK’s exit from its long period of stagnation will be steady rather than spectacular. 

Peter Arnold, EY UK Chief Economist, said: “GDP was unchanged in April, as the economy consolidated the strong gain made in March. The sector breakdown showed that lower output in the consumer-facing services sector provided the largest drag on activity in April, driven by a significant fall in retail sales and an earlier-than-usual Easter. Elsewhere, manufacturing and construction activity both fell. But this was offset by stronger output elsewhere in the services sector.

“Monthly GDP data can be noisy and the focus placed upon individual outturns should therefore be measured. Indeed, after three strong month-on-month gains, it was always likely that there would be some payback in April, and a flat outturn beat the EY ITEM Club’s expectations. Looking through this volatility, the EY ITEM Club expects GDP to grow at a decent pace in Q2. The drag on some sectors from an early Easter should unwind in May. Moreover, early business survey data has signalled that private sector activity growth remained robust across the first two months of the quarter. However, planned strikes in the healthcare sector at the end of June will likely weigh on activity. On balance, the EY ITEM Club expects quarter-on-quarter GDP growth to be slower in Q2 than in Q1.

“Looking further ahead, the EY ITEM Club thinks rising real household incomes and consumer confidence will be the key drivers of stronger economic growth over the rest of this year and into 2025. However, tighter fiscal policy and the lagged passthrough of past interest rate rises are likely to mean that the UK economy’s exit from its long period of stagnation will be steady rather than spectacular.”

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.

11 June 2024 | EY ITEM Club comments:

Pay growth continues to cool despite national living wage rise

  • UK private sector regular pay growth continued to cool in April, despite a large increase in the national living wage that month. At the same time, labour market conditions continued to loosen, albeit to a lesser extent than around the turn of the year.
  • April’s large overshoot for services inflation likely took a June interest rate cut off the table. But with pay growth slowing in line with the Bank of England’s expectations and labour market conditions loosening, the EY ITEM Club sees today’s release as being consistent with the Monetary Policy Committee (MPC) cutting rates later in the summer. 

Peter Arnold, EY UK Chief Economist, said: “April's pay data had been eagerly awaited, as it would show the effect of the near-10% increase in the national living wage on whole economy wage growth. In the event, the Bank of England's favoured measure – private sector regular pay growth – cooled to 5.8% in the three months to April, from 5.9% in March. The relatively benign outcome was partly due to large base effects, but the EY ITEM Club also thinks that the impact of the National Living Wage rise was smoothed over the early months of the year and that this likely explains some of the strength in previous months. It is difficult to benchmark the outturn against the Bank of England's expectations, as it only provides quarterly forecasts for this series. But factoring in additional large base effects coming into play in the next couple of months, the April data leaves pay growth on track to meet the Bank of England's Q2 projection.

“On the quantities side, labour market conditions still appear to be loosening, albeit perhaps not as much as previously. A 12,000 fall in vacancies on three months earlier was a much smaller decline than those recorded over the past couple of years, while the decline in HMRC's count of pay-rolled employees in May was also more modest than of late. Workforce jobs bucked the loosening trend, with another large gain in Q1, but this series appears to be an outlier.

“April's large overshoot for services inflation has likely taken a June rate cut off the table. However, with pay growth slowing in line with expectations and labour market conditions loosening, the EY ITEM Club doesn't see anything in today's release that would prevent the MPC from cutting rates later in the 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.

07 June 2024 | EY ITEM Club comments:

Halifax shows house prices remain broadly flat

  • House prices were broadly flat in May, extending the period of relative stability that we’ve seen since the turn of the year. The stabilisation in market conditions reflects the large fall in mortgage rates since last summer, with transactions and prices having decisively passed their trough.
  • But the recent rise in mortgage rates is likely to prevent any meaningful pickup in transactions and prices in the short-term. 
  • Looking further ahead, the recovery in prices is likely to be slow and steady, given that poor affordability continues to significantly limit the pool of potential buyers and mortgage rates are likely to fall back slowly. 

Peter Arnold, EY UK Chief Economist, said: “The Halifax measure of house prices fell by 0.1% month-on-month in May, after being flat in April. This continued the period of relative stability in house prices observed since the start of this year.

“While 2023 was a challenging year for the housing market, data for the first half of 2024 has suggested that the market has passed the bottom. The substantial fall in mortgage rates since last summer, combined with strong growth in nominal wages, has reduced the scale of the mortgage affordability problem. This has helped to entice some buyers back to the market, leading to a recovery in transactions and putting a floor under prices.

“Over the past couple of months, mortgage rates have edged up again in response to rising swap rates, as financial markets anticipate a slower pace of Bank of England interest rate cuts. This is likely to prevent any meaningful pickup in transactions and prices in the near-term. But so far, the increases have been small and mortgage rates remain well below last summer’s peaks. The EY ITEM Club does not expect to see a renewed downturn in the housing market.

“Further out, the EY ITEM Club expects a slow and steady recovery in house prices. After the Global Financial Crisis, prices were broadly flat for three years before a recovery took hold. Though mortgage affordability is much better than it was last summer, it remains stretched relative to historical norms, and the EY ITEM Club expects only a slow fall in mortgage rates over the next couple of years. Furthermore, it’s not just the affordability of mortgage payments that is limiting the pool of potential buyers. The relatively small fall in house prices over the past couple of years means that both loan-to-income and loan-to-value ratios remain high, preventing many people from being able to access mortgage finance. Tight supply, resulting from very low levels of housebuilding, will provide some offset to subdued demand. But the EY ITEM Club expects a very slow pickup in prices over the next few 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.

06 June 2024 | EY ITEM Club comments:

Construction recovery gathered pace in May

  • A two-year high for the construction Purchasing Managers’ Index (PMI) in May suggests the sector is well on the road to recovery. The EY ITEM Club expects to see a solid rebound in construction output in Q2, after Q1 was significantly affected by unusually wet weather.
  • The fact that the recent upturn was broad-based across the sub-sectors and built on improving new orders suggests it should have some durability. The belated housing upturn is a lagged response to increasing evidence that housing transactions and prices have passed the bottom. The EY ITEM Club expects this recovery to continue, albeit at a modest pace. 

Peter Arnold, EY UK Chief Economist, said: “The construction Purchasing Managers’ Index (PMI) rose to 54.7 in May from 53.0 in April, reaching its highest level in two years. All the underlying detail of the S&P Global survey was encouraging. Rising activity was driven by stronger growth in new business, while supply-chain conditions continued to improve, and input cost inflation cooled further.

“The construction PMI has been a relatively good leading indicator of the official measure of construction output over the past couple of years. The official series underwhelmed in Q1, largely because of the disruption caused by a prolonged period of wet weather. However, the strength of the recovery in the PMI in April and May suggests that Q2 is likely to see a robust recovery in construction output. This should help to mitigate the impact on GDP of April’s poor retail performance and the planned healthcare sector strikes at the end of this month.

“The strength of the new orders balance suggests the recent construction upturn should have some durability, and the broad-based nature of May’s strength further supports this view. It was the first time since May 2022 that all three sub-sectors – commercial, civil engineering, and housing – reported rising activity. Experience suggests that housebuilding reacts to movements in housing transactions and prices with a lag, so the return to growth of the residential sector is a response to increasing evidence that prices and demand have passed the bottom. The EY ITEM Club expects this recovery to become more firmly entrenched over the coming months, although the pace of the upturn is likely to remain modest.”

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 June 2024 | EY ITEM Club comments:

Weaker services PMI points to less robust activity growth in Q2

  • May's final UK services Purchasing Managers’ Index (PMI) signalled a more modest pace of activity growth than in recent months. In combination with April's fall in retail sales and planned healthcare sector strikes in late June, May's lower PMI readings are consistent with the EY ITEM Club’s forecast for slower GDP growth in Q2, following Q1's strong outturn.
  • The survey also pointed to lower input cost inflation, as upward pressure from the introduction of the higher national living wage in April unwound in May. Together with evidence of a further slowdown in output prices, this supports the EY ITEM Club’s view that the Office for National Statistics’ (ONS) measure of services inflation will steadily cool through the summer.

Peter Arnold, EY UK Chief Economist, said: “May's final S&P Global survey reported a slower pace of services activity growth than in recent months, with the Purchasing Managers’ Index (PMI) falling to 52.9, from 55.0 in April. Respondents linked the smaller upturn to a softer rise in demand, particularly from overseas customers. But with May's earlier manufacturing survey having reported an increase in production, the fall in the composite PMI was smaller, to 53.0 from 54.1 in April.

“Though still above the 50 'no-change' mark, May's weaker composite PMI reading is consistent with the EY ITEM Club’s view that the UK is set to see a slower pace of quarter-on-quarter GDP growth in Q2. Some of the consumer strength at the end of Q1 may have reflected the earlier-than-normal Easter, so this should have unwound at the start of Q2. Indeed, April's fall in retail sales was consistent with that idea. Additionally, four days of planned junior doctor strike action at the end of June – a factor that won't be captured in business surveys – should weigh on output in the health sector this month. As a result, the EY ITEM Club thinks quarter-on-quarter GDP growth will slow, after Q1's 0.6% increase.

“On the inflation front, May's services survey reported that input costs rose at their slowest pace for three years, after the large national living wage increase had caused a significant rise in labour costs in April. Together with evidence of a further slowdown in prices charged inflation, this is consistent with the idea that services inflation will continue to cool through the 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.

24 May 2024 | EY ITEM Club comments:

Significant fall in retail sales points to softer GDP growth in Q2

  • A surprisingly substantial fall in UK retail sales in April added to the evidence that GDP growth is likely to cool a little in Q2, after Q1's very strong gain. Retail sales data is always volatile, but recent outturns have been exceptionally choppy. The EY ITEM Club expects April's fall to be reversed in May, mirroring the experience of December and January.
  • The EY ITEM Club remains cautiously optimistic about the consumer outlook for H2 2024. Wages are growing strongly in real terms, following the significant fall in inflation. And strengthening confidence suggests real income gains should translate into solid spending growth, in contrast to last year.

Peter Arnold, EY UK Chief Economist, said: “Retail sales fell by 2.3% month-on-month in April, following a decline of 0.2% in March (revised down from flat). There were large month-on-month falls in sales in the food, non-food, and fuel categories, with the Office for National Statistics (ONS) blaming poor weather for reducing footfall in stores. Even by the standards of the retail sales data, which is an exceptionally volatile series, recent outturns have been particularly choppy. The early Easter has probably added to the complications this time around. But the EY ITEM Club thinks May should see a strong rebound, mirroring the experience of December and January.

“However, taking a broader sweep, it's clear that the retail sector is still struggling to generate much momentum. And coming on the back of yesterday's softer composite Purchasing Managers’ Index (PMI), it suggests that the UK is likely to see a weaker outturn for GDP growth in Q2, after Q1's very strong performance.

“Still, the EY ITEM Club remains cautiously optimistic about the consumer outlook for H2 2024. Though inflation is proving stickier than previously hoped, it has fallen significantly over the past year and most consumers are enjoying strong real wage gains. That said, the strength of real income growth is being dampened by tighter fiscal policy and, for borrowers refinancing fixed-rate mortgages this year, by the lagged impact of tighter monetary policy. But today's GfK release suggests that consumer confidence is continuing to gradually strengthen, particularly around prospects for personal finances and the economy over the next 12 months. Therefore, in contrast to the past year, the EY ITEM Club thinks there's a good chance that real income gains will translate into solid growth in consumer spending.”

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.

23 May 2024 | EY ITEM Club comments:

Composite PMI falls, but recovery still running at a solid pace

  • Though the UK composite Purchasing Managers’ Index (PMI) dropped back in May, it continued to signal a solid pace of activity growth. The UK remains on track to see another decent outturn for GDP growth in Q2, with the recovery becoming more firmly entrenched.
  • Much softer cost and price pressures in the services sector provided some pushback to the narrative from yesterday's inflation data. But in terms of the June monetary policy decision, it's likely to be a case of too little too late.

Peter Arnold, EY UK Chief Economist, said: “May's flash S&P Global survey reported a fall in the composite Purchasing Managers’ Index (PMI) to 52.8, from 54.1 in April, taking the balance back to the level seen in March. A fall in the services PMI (to 52.9 from 55.0) was the cause, with growth in new orders cooling. On the flip side, the manufacturing PMI rebounded back into positive territory again (51.3 in May after 49.1 in April).

“The PMIs are often volatile from month-to-month, while the strength of last month's balance did look like an outlier compared with other indicators, so the EY ITEM Club does not see May's softer outturn as being problematic. Indeed, it is consistent with GDP continuing to grow at a solid pace in Q2, and the recovery becoming more firmly entrenched.

“The other interesting development in May's flash survey was the weakness in the costs and prices balances. Input cost inflation was the weakest in seven months, while output prices rose at their slowest pace since February 2021, with the service sector being the source of weakness in both sectors. Following on the back of yesterday's large upside surprise for services inflation, these results offer some cause to hope that the official data will cool in the months ahead. But the chances of a June rate cut look very low after yesterday's data, and softer survey data is unlikely to do much to change that.”

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 May 2024 | EY ITEM Club comments:

Inflation overshoot complicates matters for the Bank of England

  • Though UK Consumer Price Index (CPI) inflation fell significantly in April, the decline was 0.2ppts less than the Bank of England had forecast. The fact that services inflation was responsible for the overshoot presents a challenge for the Monetary Policy Committee (MPC) and reduces the probability of a June rate cut.
  • Inflation should still drop back to the 2% target over the coming months, as large base effects in the food and core categories continue to emerge. But with the scale of the once-a-year rises in index-linked and regulated prices being higher than anticipated, higher inflation in these categories now appears baked in for another year.

Peter Arnold, EY UK Chief Economist, said: “Consumer Price Index (CPI) inflation slowed to 2.3% in April, down from 3.2% in March. The fall was slightly smaller than the EY ITEM Club expected and 0.2ppts less than the Bank of England had forecast. About half of the decline came from the energy category, with the Ofgem price cap having been cut by nearly 12%. Other downward pressures came from the food and core categories. But the fall in core inflation was disappointingly small. Indeed, the month-on-month change in services prices was slightly smaller than last year's substantial increase, when high inflation the previous year had driven very large once-a-year price rises for many index-linked contracts and regulated prices. As expected, some categories, such as telecoms, had much smaller increases this April. But others, such as water bills, rose significantly again.

“The stickiness of services inflation presents a challenging complication for the Bank of England. The outturn for services inflation was 0.4ppts higher than the Bank of England forecast in May's Monetary Policy Report. Given the importance attached to this series as a measure of inflation persistence, the scale of the overshoot will likely make it much harder for the Monetary Policy Committee (MPC) to cut in June. Furthermore, the fact that some of the overshoot reflected higher increases for goods and services where prices change once-a-year means that higher inflation is now likely baked into these categories for another year. 

“Still, recent movements in wholesale gas futures prices mean Ofgem's energy price cap is on track to fall by another 6-7% in July. And strong base effects in the food and core categories will continue to emerge. Therefore, inflation should still drop back to the Bank of England’s 2% target over the coming months.”

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 May 2024 | EY ITEM Club comments:

A challenging start to the new fiscal year

  • The new fiscal year got off to a disappointing start for the UK’s public finances, with borrowing coming in above the Office for Budget Responsibility's (OBR) forecast. The effect on debt servicing costs of higher Bank Rate and gilt yields than the OBR assumed in its Budget forecast mean that this underperformance is likely to continue for the rest of the financial year.
  • It's unlikely that OBR forecast revisions would offer the government scope for another tax-cutting fiscal event before the next general election. However, it is possible that the Chancellor could still create room for tax cuts by asking the OBR to assume even greater spending restraint.

Peter Arnold, EY UK Chief Economist, said: “Public sector net borrowing (excluding public sector banks) came in at £20.5bn in April, £1.5bn higher than a year ago and £1.2bn above the Office for Budget Responsibility's (OBR) forecast. The overshoot against the OBR's forecast reflected both softer growth in tax revenues and higher spending.

“The EY ITEM Club thinks this underperformance will continue through the rest of the financial year, given that gilt yields and Bank Rate are set to be higher than the assumptions used in the OBR's March forecast, implying higher-than-expected debt servicing costs. Some of this impact looks likely to endure to the end of the OBR's five-year forecast horizon, cutting the already-slim headroom against the government's main fiscal rule. The annual roll forward of the forecast horizon would be supportive of the fiscal arithmetic, but equally there's always the risk that at some point the OBR will revisit its optimistic growth forecasts. Therefore, the scope for another tax-cutting fiscal event before the election looks limited, unless the Chancellor opts to make further changes and asks the OBR to assume even greater spending restraint.

“Fiscal policy is due to be tightened significantly over the next five years through both higher tax revenues, via the ongoing freeze of most allowances and thresholds, and very tight spending plans. Given Labour’s vow to maintain the existing debt rule, it’s unlikely a potential change of government would yield a markedly different approach to fiscal policy. Still, there may be an incentive for whoever forms the next government to front-load the fiscal tightening and get the bulk of it out of the way early in the term, well before they need to seek re-election.”

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 May 2024 | EY ITEM Club comments:

Pay data keeps the Bank of England on track to cut interest rates

  • Private sector regular pay growth for March came in slightly lower than the Bank of England's forecast, clearing the first hurdle for a rate cut. But next month's release will likely present a more significant obstacle given it will factor in the effect of April's near-10% rise in the national living wage, while underlying pay pressures remain firm.
  • Though the EY ITEM Club puts little weight on the Labour Force Survey (LFS) estimates given the ongoing problems with small samples, other indicators also suggest labour market conditions are continuing to loosen. This should further drag on pay growth over the coming months.

Peter Arnold, EY UK Chief Economist, said: “The headline finding from today's labour market release was that private sector regular pay growth – the Bank of England's favoured measure – edged down to 5.9% in the three months to March. The minutes of last week's Monetary Policy Committee (MPC) meeting made clear that outturns for this variable and services inflation would be key determinants of the timing of the first rate cut. The Monetary Policy Report included a Bank of England staff projection that pay growth would be 6% in the three months to March, so on the face of it, today's outturn effectively clears the first hurdle for a rate cut.

“However, next month's data – which will include the impact of April's near-10% rise in the national living wage – is likely to be more important. Timelier HMRC data showed a rise in pay growth in April. And with the main measure of pay growth running above 5% on a three-month-on-three-month annualised basis in March, a sizeable minority of the MPC may see today's data as evidence that there's still work to do before rates can be cut. 

“Conversely, another factor that will be supportive of rate cuts is the continued loosening in labour market conditions. The ongoing volatility caused by low response rates means the EY ITEM Club places little store on the LFS data, which showed the unemployment rate edging up to 4.3%. However, a range of other data suggests conditions are continuing to loosen. Most notably, vacancies continued to edge down, while HMRC's count of employees on payrolls showed a large month-on-month fall in April. Furthermore, loosening labour market conditions should add to the downward pressures on pay growth over the coming months.”

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.

10 May 2024 | EY ITEM Club comments:

Strong March delivers a big upside surprise for GDP in Q1

  • A big upside surprise for UK GDP growth in Q1 adds to the evidence that the economy is on the road to recovery after two years of stagnation. Early business survey data for Q2 also suggests the momentum is being maintained.
  • The first cut of the expenditure data for Q1 showed a surprisingly small contribution from consumer spending. But the EY ITEM Club expects the consumer outlook to strengthen as we move through the year, via a combination of solid real income growth and some dis-saving. 
  • With the lagged effect of tighter monetary policy still emerging and fiscal policy becoming progressively tighter, the EY ITEM Club expects the economic recovery to be steady rather than spectacular.

Peter Arnold, EY UK Chief Economist, said: “GDP comfortably exceeded expectations in March, growing 0.4% month-on-month. March's expansion was relatively broad-based, but there were particularly large contributions from consumer-facing services and health. The health sector saw the drag from industrial action fade away, with no nationwide industrial action in March. The consumer strength may partly reflect the earlier-than-normal Easter, suggesting there could be some payback in April. But conversely, there's scope for a rebound in construction output, since unusually wet weather hampered activity in the sector in both February and March.

“With February's growth also revised up (to 0.2%, from 0.1%), this meant that GDP rose by 0.6% quarter-on-quarter in Q1. The Q1 gain more than offset the small falls in output seen in H2 2023. The first cut of the expenditure data for Q1 showed strong contributions from investment and net trade, though the latter was again affected by flows of non-monetary gold. Consumer spending edged up, but the scale of the rebound was underwhelming, particularly given the larger pickup in distribution activity reported in the output data.

“Early business survey data for Q2 has been positive, with the composite Purchasing Managers’ Index (PMI) reaching an 11-month high. Though consumers had a relatively slow start to the year, the EY ITEM Club expects them to lead the recovery, with lower inflation driving solid real income growth and the savings ratio likely to drop back from its recently high level. Therefore, the EY ITEM Club expects Q1 to mark the beginning of a sustained recovery in economic growth after two years of stagnation. However, with the lagged effect of tighter monetary policy still emerging and fiscal policy becoming progressively tighter, the recovery is likely to be steady rather than spectacular.”

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.

9 May 2024 | EY ITEM Club comments:

MPC delivers an unmistakeably dovish message

  • Though the Monetary Policy Committee (MPC) voted to keep Bank Rate at 5.25% in May, its message was unmistakeably dovish and indicated that rate cuts are moving ever closer.
  • The MPC’s new forecast shows inflation below 2% in two and three years’ time. This is a signal that the MPC thinks market pricing, which assumes less than two 25bps rate cuts by year-end, is too high.
  • The EY ITEM Club is sticking with its call that the first rate cut will come in June. But the April data for pay and services inflation is likely to be key and must come in at, or below, the MPC’s expectations.

Peter Arnold, EY UK Chief Economist, said: “May’s MPC meeting saw the committee vote 7-2 to keep Bank Rate at 5.25%. However, there are indications that a rate cut is on the horizon. First, the MPC revised down its inflation projection across the whole forecast horizon. Based on market expectations, inflation is now forecast to be below the 2% target after both two and three years. This is usually an indication that the MPC thinks current market pricing is too high and that rates are likely to be cut more significantly.

“Second, the Bank of England made a more explicit link to the information from ‘forthcoming data releases’ being a deciding factor over when rates will be cut. This suggests that the April data for pay growth and services inflation will be key. Both releases will be available to the MPC before the next meeting in June, so the EY ITEM Club is sticking with its call that the first rate cut will come at that meeting. That said, the decision is finely balanced and it wouldn’t be a major surprise to see the MPC prioritise caution and wait for August to start cutting rates.

“The EY ITEM Club then expects a further two 25bps rate cuts before the end of 2024, consistent with the MPC’s signalling that market pricing is too high.”

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.