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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

Parker Review reveals good progress on ethnic diversity for FTSE 250 in 2023

The Parker Review Committee has published the 2023 results of its latest voluntary census on the ethnic diversity of the boards of FTSE 350 companies.

11 Mar 2024

One-in-five UK-listed companies with a DB pension scheme issued a profit warning in 2023

The number of profit warnings issued in 2023 by UK-listed companies with a Defined Benefit (DB) pension scheme increased by 6% on the previous year, according to EY-Parthenon’s latest Profit Warnings report.

27 Feb 2024

MoneyGram Haas F1 Team appoints EY

EY will provide consulting services to support Haas adopt greater system functionality through the Microsoft Dynamics platform.

21 Feb 2024

13 March 2024 | EY ITEM Club comments:

GDP looks to be on the road to recovery

  • January's rise in UK GDP could mark the start of a sustained recovery. The EY ITEM Club thinks health output is likely to have recovered further in February, when fewer working days were lost to industrial action, while business survey data has also been much stronger of late.
  • Momentum should build through the rest of the year, as much lower inflation offers solid support to real household income growth. Still, the lagged effect of past interest rate rises and tighter fiscal policy present significant headwinds that are likely to mean the pickup in activity is steady rather than spectacular.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “GDP rose by 0.2% month-on-month in January, recovering most of the ground lost at the end of last year. Unusually volatile data for the distribution sector was a key part of the story, with retail sales having rebounded in January following December's decline. Rather surprisingly, health output rose in January despite six days of industrial action by junior doctors at the start of the month, with the Office for National Statistics (ONS) attributing the increase in health activity to strength in the market sector. The construction sector also saw a substantial rise in output in January, after three successive large month-on-month falls at the end of 2023. 

“The EY ITEM Club expects GDP to have risen further in February. There were fewer strikes by junior doctors, so output in the health sector should have continued to recover. Meanwhile, the S&P Global/CIPS survey reported that the composite Purchasing Managers’ Index (PMI) reached a nine-month high last month. Overall, the EY ITEM Club expects to see solid GDP growth in Q1 2024, largely reversing the fall in output seen in H2 2023.

“Looking further out, the EY ITEM Club expects the economy to see decent growth during 2024, with a marked fall in inflation offering strong support to real incomes. Still, the pace of the uptick is likely to be constrained by the lagged effect of past interest rate rises and tighter fiscal policy, with this year's 4p cut in the rate of National Insurance Contributions only offsetting part of the impact of frozen tax thresholds.”

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.

12 March 2024 | EY ITEM Club comments:

Pay growth remained stubbornly high in early 2024

  • The downward momentum in UK pay growth slowed in January. The Monetary Policy Committee (MPC) wants clear evidence that pay pressures are abating when contemplating the timing and pace of rate cuts and today’s data is unlikely to have members changing their approach. But the EY ITEM Club believes there is a strong case for rate cuts to begin soon.
  • Having been reintroduced last month, the Labour Force Survey (LFS) continues to suggest that higher inactivity is keeping the jobs market tight. Still, the survey's issue with small samples means the EY ITEM Club remains wary when interpreting its data.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “This month's labour market release showed that headline (three-month average of the annual rate) average weekly earnings growth slowed only modestly in January, falling to 5.6%, from 5.8% in December. Meanwhile, private sector regular pay growth, the Bank of England's favoured measure, eased very slightly to 6.1%, from 6.2%. Persistent pay growth at the start of the year is consistent with the survey conducted recently by the Bank of England's regional agents. 

“LFS data showed that the jobs market remained relatively tight in the three months to January. Both employment and unemployment were down slightly on the previous three-month period, with inactivity rising again. Meanwhile, vacancies continued to fall back, although they remained above pre-pandemic levels. Though the LFS was re-introduced last month, the issue of small samples will not be fixed until the autumn. So, the EY ITEM Club is interpreting the LFS data with caution.

“The MPC has been clear that evidence on the strength of underlying inflation and pay pressures will be key to the timing and pace of rate cuts. Today's pay data was broadly consistent with the forecast by Bank of England staff published in last month's Monetary Policy Report, so it's unlikely to alter the views of MPC members. But wages are a lagging indicator and the EY ITEM Club thinks pay growth will continue to slow, as low inflation weighs on pay demands. In the EY ITEM Club’s view, there is a strong case for the MPC to cut rates soon, although the Committee’s recent cautious language suggests that move may have to wait until 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.

07 March 2024 | EY ITEM Club comments:

House prices recovery is looking well-established

  • Although a 0.4% month-on-month rise in Halifax’s measure of house prices in February was smaller than January’s, it was the fifth successive monthly increase. Aided by lower mortgage rates and an improving economic outlook, a recovery in property values now looks to be firmly established.
  • The EY ITEM Club expects prices to continue ticking up. Real wages are rising again, unemployment is low and quoted mortgage rates have fallen since the peaks last summer. The recovery in mortgage approvals suggests these factors are boosting activity in the housing market, while high inward migration offers another prop to demand.
  • Quoted mortgage rates are still much higher than in the past and appear to have levelled off in response to markets paring back expectations of the scale of Bank of England rate cuts. So, a house price boom is a long way off, but prices now look to be back on an upward trajectory.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “The premise of a continued house price recovery was reinforced by another rise in Halifax’s measure of house prices. Granted, February’s 0.4% month-on-month increase was down from 1.3% in January, but it was the fifth successive monthly rise and left prices only 0.6% below their all-time high in the summer of 2022, if down by more in inflation-adjusted terms. 

“February’s outturn, alongside an increase in Nationwide’s house price measure in the same month, bolsters the EY ITEM Club’s view that the correction in property values seen in late 2022 and part of last year has ended. An improving economic outlook has helped. 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 lower than 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, but a continued under-supply of new houses, is also propping up property values. 

“Signs of resilience in the housing market carry some qualifications. Mortgage approvals in January were still a tenth below the 2022 average, reflecting the fact that while mortgage affordability has improved in recent months, it remains stretched in comparison to past norms. The average interest rate on new mortgages dipped in January. But it was still around 350bps higher than the lows of 2021. And there is already evidence that quoted mortgage rates are rising in response to markets paring back expectations of the scale of Bank of England rate cuts this year. This is likely to continue over the next few months. However, even allowing for these headwinds, the EY ITEM Club thinks that house prices are now back on an upward trajectory.” 

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 March 2024 | EY ITEM Club comments:

Budget’s tax cuts will ease fiscal pressure on economy

  • The fact that the tax cuts announced by the Chancellor today will be part-funded by tax rises elsewhere will limit the boost to the economy. Nonetheless, alongside lower inflation, falling energy bills and prospective cuts in interest rates, the Budget’s personal tax cuts offer another reason to believe the economy will gather momentum this year and next.
  • On a pre-Budget measures basis, the Office for Budget Responsibility (OBR) made little change to its estimate of headroom against the Chancellor’s fiscal rules. However, the Chancellor chose to use more of what was already limited room for manoeuvre to cut taxes in net terms. Most importantly, National Insurance rates will be reduced by 2p, raising households’ post-tax incomes by around £10bn annually. But this will be partly offset by several new taxes and other revenue raising measures.
  • A more upbeat economic forecast from the OBR made for a slightly better fiscal outlook in the short-term. GDP is now forecast to rise a bit faster this year and next than expected last autumn. This leaves the OBR noticeably more optimistic on growth than the Bank of England, and in the EY ITEM Club’s view justifiably so.
  • It remains the case that the squeeze on public spending baked in for the next parliament looks implausibly tight. That will be less so if measures announced today to improve the public sector’s poor productivity performance are successful. Technological advances, particularly Artificial Intelligence (AI), offer some hope here.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Today’s Budget delivered a widely-trailed cut in National Insurance Contributions (NICs). Building on the 2p cut announced last autumn, the Chancellor delivered a further 2p reduction, cutting NICs rates to 8% for employees and 6% for the self-employed from April. In isolation, this will boost households’ post-tax income by £10bn per year by 2028-2029. However, the Chancellor part-financed the reduction in personal taxes with targeted tax rises elsewhere. Notably, the tax regime for non-domiciles will be abolished and replaced with a less generous system and the windfall tax on oil and gas producers will be extended by a year. As a result, the Budget’s net fiscal loosening averages a modest £8bn, or around 0.3% of GDP, over the five years from 2024-2025.

“The OBR has become more optimistic about the economic outlook, largely reflecting support from lower energy prices and falls in market interest rates. GDP is now expected to rise by an above consensus 0.8% this year, close to the EY ITEM Club’s forecast of 0.9%, followed by 1.9% in 2025. This compares with 0.7% and 1.4% this year and next predicted by the OBR in the autumn.

“The tax cuts announced in the Budget contribute to that growth upgrade by raising household incomes and, via increasing returners to work, boosting labour supply. Combined with lower inflation, falling energy bills and likely cuts in interest rates in the next few months, prospects for the economy are brightening.

“But despite a better economic outlook, the OBR’s pre-Budget estimate of headroom against the government’s key fiscal target to reduce public debt as a share of GDP in five years’ time was little changed from last autumn. This mainly reflects the adverse effect of lower inflation on tax revenues. But the cuts in NICs and other ‘giveaways’ mean the Chancellor has chosen to use more of what was already a limited room for manoeuvre. 

“Still, the Budget’s net tax cut leaves the Chancellor with only a small margin against his debt goal. The predicted £9bn of headroom against the fiscal rules in 2028-29 is down from £13bn in the autumn and compares with an average of £26.1bn that Chancellors have set aside against their fiscal rules since 2010. 

“Such a modest margin suggests that today’s Budget may be the final fiscal event before the next general election. The Chancellor has been the beneficiary of favourable OBR forecast revisions twice in a row, but the fiscal arithmetic could easily go the other way next time. Notably, the fact that market interest rate expectations have been rising since the OBR locked down its forecast in late January would imply a higher projection for debt interest spending, and even less fiscal headroom, were the forecast to be produced today. 

“Whether what is an arbitrary fiscal target really matters is another question. More importantly, the tax burden is projected to rise to a post-war high over the next few years, despite today’s tax cuts, while public spending in the next parliament is on course to be squeezed to a significant extent. Measures announced today to improve the public sector’s poor productivity performance, initially focused on the NHS, could go some way to making those spending plans more feasible without damaging public services. Technological advances, particularly AI, offer some hope here.

“Adjusting the fiscal rules to allow higher public sector investment and ensuring that investment goes into measures that raise the economy’s growth potential could also help.”

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 March 2024 | EY ITEM Club comments:

Construction weakness continues to ease

  • February’s construction Purchasing Managers’ Index (PMI) of 49.7 came in ahead of expectations and was the highest for six months. Alongside better signs in February’s other activity surveys, construction’s performance adds to indications that the economy’s contraction in late 2023 will likely have proved short-lived.
  • Housebuilding saw a particularly marked turnaround in the latest S&P Global survey, suggesting that lower market interest rates and an improvement in the mood music around the housing market are making their presence felt. That said, cost pressures facing construction businesses picked up in February, another indication that some sources of inflation are proving sticky.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “February’s construction PMI signalled that previous weakness in the sector is fading. Although an index of 49.7 was still below the 50 ‘no-change’ mark separating the S&P Global survey’s measure of expansion from contraction, it was only marginally below, and the highest since last August. The latest survey’s forward-looking balances were also more positive. Total new work increased marginally in February, ending a six-month period of decline, and business optimism was the highest for over two years.

“The fact that housebuilding activity saw the biggest turnaround in February’s survey suggests that the decline in mortgage rates since last summer and a recovery in housing market activity are starting to make their presence felt. However, commercial activity slipped in comparison to January’s level.

“With the Bank of England likely to start cutting interest rates in the next few months, what has been one of the key headwinds facing the construction sector should ease further, loosening credit conditions and reducing debt costs and investment hurdle rates. 

“However, on a more downbeat note, despite falling energy prices, February’s survey showed cost pressures facing construction companies picking up - a move linked to strong wage pressures and rising transportation costs. The S&P survey’s measure of input cost inflation has also risen for services and manufacturing businesses in recent months. This offers another reason as to why the Bank of England’s language around the prospect of interest rate cuts is likely to remain cautious for the time being.”

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 March 2024 | EY ITEM Club comments:

Services growth in February is another sign that recession was short-lived

  • Although February’s services Purchasing Managers’ Index (PMI) slipped slightly, it signalled another month of growth in the economy’s dominant sector and reinforced the EY ITEM Club’s view that the late 2023 recession was short-lived. Rising real wages, falling energy bills and the prospect of cuts in taxes and interest rates should see momentum in services activity and the wider economy build through 2024. 
  • Evidence in the latest S&P Global survey of still-strong wage growth will probably inject more caution into the Monetary Policy Committee’s (MPC) attitude towards rate cuts. However, wages are a lagging indicator and prospective cuts in energy bills point to inflation falling below the Bank of England’s 2% target for much of this year. In the EY ITEM Club’s view, the case for the MPC to cut rates soon remains strong.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “A robust reading for the services PMI in February continued to contrast with relative weakness in the manufacturing index. The services PMI stood at 53.8, a slight decline from January’s eight-month high of 54.3 but still higher than at any time in the second half of 2023. With February’s manufacturing PMI stuck in contractionary, sub-50 territory, the composite PMI for last month came in at a weaker 53.0. Still, this was consistent, given past form, with quarterly GDP growth of around 0.3% in Q1 and reinforces the EY ITEM Club’s view that the recession in the second half of last year is likely over.

“Momentum in services activity and the wider economy should improve. Average wages are rising in real terms again, some form of personal tax cut looks likely in the Spring Budget and household energy bills will fall by 14% in April, which should boost discretionary spending. If the recent further fall in wholesale gas prices is maintained, bills should see another double-digit percentage cut in July, when Ofgem recalculates the Energy Price Cap. Alongside broader disinflationary forces, less expensive energy should bring inflation below the Bank of England’s 2% target in the spring and keep it at that level for much of this year, unlocking rate cuts by the Bank of England.

“True, the latest S&P Global survey pointed to cost pressures in the services sector proving stubborn, mainly as a result of still-strong pay growth. The survey’s balance for input costs rose to a five-month high, and with some of those cost pressures passed onto customers, selling prices inflation also picked up. But wages are a lagging indicator and the EY ITEM Club thinks the sustained slowdown in the official pay data during 2023 should continue as low inflation weighs on pay demands. In the EY ITEM Club’s view, the case for the Monetary Policy Committee to cut rates soon remains strong, although the MPC’s cautious language of late means that move may have to wait until 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.

01 March 2024 | EY ITEM Club comments:

Manufacturing weakness eased in February

  • The manufacturing Purchasing Managers’ Index (PMI) remained in contractionary territory in February, although an index of 47.5 was a 10-month high. Supplier delays caused by geopolitical tensions perversely boosted the PMI, although the S&P Global survey’s measure of manufacturing output, a better measure of the sector’s performance, fell at the slowest rate in three months.   
  • Shipping disruption also contributed to another rise in the survey’s measure of input costs and prices charged. While this poses a risk to further falls in inflation, the EY ITEM Club thinks the strength of broader disinflationary pressures will dominate the outlook for price movements in the economy.  

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “The manufacturing PMI in February remained in contractionary, sub-50 territory, for the nineteenth successive month, the longest run of contraction since the index began in 1992. However, February’s PMI of 47.5 was up from 47.0 in November and a 10-month high. Given that the PMI was perversely supported by a rise in supplier delivery times stemming from geopolitical tensions and the associated disruption to shipping, it would be unwise to read much into the increase in the index. However, the S&P Global survey’s measure of manufacturing output, while continuing to fall, declined at the slowest pace in three months.

“The EY ITEM Club continues to think manufacturing isn’t as weak as the survey suggests. The PMI was a poor guide to the official measure of manufacturing output last year. Moreover, the sector enjoys some positives. An easing in cost-of-living pressures off the back of falling inflation in the UK and abroad should support demand for goods. Meanwhile, relatively energy-intensive manufacturing will benefit disproportionately from the recent fall in wholesale gas prices, which are now significantly below levels just prior to Russia’s invasion of Ukraine. 

“Granted, the fact that shipping disruption also contributed to another rise in the survey’s measure of input costs and prices charged, the former to an 11-month high, poses a potential risk to the speed at which inflation falls. However, shipping costs represent only a tiny proportion of the retail price of goods, while broader disinflationary forces, particularly from lower energy prices, are significant. Consequently, the EY ITEM Club thinks geopolitical tensions should do little to arrest inflation’s decline, and should not present a major obstacle to the Bank of England cutting interest rates.” 

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

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

01 March 2024 | EY ITEM Club comments:

Rise in house prices in February is another sign that correction is over

  • Nationwide’s measure of house prices rose by 0.7% month-on-month in February, returning to annual growth for the first time since January 2023. Aided by lower mortgage rates and an improving economic outlook, it’s looking increasingly likely that last year’s correction in house prices is over. 
  • Real wages are rising again, unemployment is low and quoted mortgage rates are up to 150 basis points down on peaks last summer. January’s rise in mortgage approvals suggests these factors are boosting activity in the housing market, while very high inward migration offers another prop to demand. 
  • Granted, there's already evidence that quoted mortgage rates are rising in response to markets paring back expectations of the scale of Bank of England rate cuts this year. But even allowing for this, the EY ITEM Club now thinks 2024 should be a year of modest growth in house prices. 

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Nationwide’s measure of house prices has shown a broad pattern of month-on-month rises since late last year. That continued in February. Average values rose 0.7% month-on-month, repeating January’s increase. This left the annual change at +1.2%, the first positive reading since January 2023, and annual values only 3% below the record high reached in the summer of 2022.   

“February’s outturn bolsters the EY ITEM Club’s view that the correction in property values seen in late 2022 and part of last year has ended. An improving economic outlook has helped. 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 up to 150 basis points lower than the peaks of summer 2023. 

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

“Signs of resilience in the housing market carry some qualifications. Mortgage approvals in January were still a tenth below the 2022 average, reflecting the fact that while mortgage affordability has improved in recent months, it's still very stretched relative to past norms. The average interest rate on new mortgages dipped in January. But it was still around 350bps higher than the lows of 2021. And there's already evidence that quoted mortgage rates are rising in response to markets paring back expectations of the scale of Bank of England rate cuts this year. This is likely to continue over the next few months. But even allowing for this, the EY ITEM Club now thinks 2024 should be a year of modest growth, rather than stagnation, 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.

29 Feb 2024 | EY ITEM Club comments:

Mortgage approvals rise, but net lending remains negative

  • Mortgage activity showed some further signs of recovery in January. Mortgage approvals rose to a 15-month high, although net mortgage lending remained negative. An improving macro environment should aid mortgage demand. However, recent moves in market interest rate expectations suggest mortgage rates may tick up in the next few months.
  • The EY ITEM Club thinks dissaving should support a consumer recovery this year. But as January's fall in gross lending shows, persistently high interest rates and inflation’s drag on the purchasing power of savings present significant headwinds that will likely limit the boost. 

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “In some respects, January's household lending data showed a recovery in mortgage activity continuing at the start of 2024. Mortgage approvals increased to a 15-month high of 55,227. But in net terms, individuals continued to repay mortgage debt. Net lending was -£1.1bn, a bigger fall than December's -£0.9bn decline. Mortgage lending fell 0.2% on a year earlier, the first annual decline since the series began in 1994. 

“This isn't the only indication that signs of life in the housing market shouldn't be overemphasised. Mortgage approvals in January were still a tenth below the 2022 average, reflecting the fact that while mortgage affordability has improved in recent months, it's still very stretched relative to past norms. While the average interest rate on new mortgages dipped in January, it was still over 350bps higher than the lows of 2021. And there's already evidence that quoted mortgage rates are rising in response to investors reining back expectations of the scale of Bank of England rate cuts this year. This is likely to continue over the next few months. Nonetheless, an improving macroeconomic climate, with cost-of-living pressures easing and monetary policy likely to be loosened soon, should support a further recovery in mortgage demand. 

“More appetite to borrow among households would also be beneficial for the economic outlook. On that score, net unsecured lending rose to £1.9bn in January from December's £1.3bn. However, this was entirely a function of a fall in repayments, with gross lending falling slightly compared with December. The EY ITEM Club thinks there is scope for dissaving to support a consumer recovery, but still-high interest rates and the drag from inflation on the purchasing power of savings will limit any boost.”

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 Feb 2024 | EY ITEM Club comments:

Fiscal headroom looks limited

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

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

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

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

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

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

16 Feb 2024 | EY ITEM Club comments:

Retail sales rebounded in January

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

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

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

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

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

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

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

15 Feb 2024 | EY ITEM Club comments:

GDP fell again in Q4

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

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

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

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

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

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

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.