...the government has an opportunity to build momentum behind the economic recovery by demonstrating it has a credible plan for boosting the country’s growth trajectory.
Driving the news: With the broader economic outlook remaining fragile, many UK firms are hitting pause on key investment and hiring decisions, "pending more clarity over the direction of the new government’s economic policies," Ben Jones, lead economist at the Confederation of British Industry (CBI), said in a recent blog post.
Zooming in: The hesitation comes as the government prepares to unveil its tax and spending plans in the Budget on October 30. Companies are concerned about potential fiscal changes, particularly in areas like national insurance contributions, which could directly impact payroll costs. "With the Chancellor’s first budget only weeks away, the government has an opportunity to build momentum behind the economic recovery by demonstrating it has a credible plan for boosting the country’s growth trajectory," Jones said. The uncertainty coincides with a cooling labor market.
- Wage growth slowed to 4.9% in the three months to August, the weakest pace in over two years, according to the Office for National Statistics.
- Job vacancies also fell by 34,000, or 3.8%, from April to June 2024, signaling softer demand for workers.
- Growth in the UK economy remains tepid, with a 0.2% rise in August driven primarily by construction and retail.
What’s next: The Bank of England is expected to cut interest rates in November, which could offer companies a financial reprieve by reducing borrowing costs. However, inflation remains a concern, particularly core inflation, which could continue to pressure input costs despite the broader decline in price levels. According to CBI's Jones, the UK also needs to improve its business environment with a "business tax roadmap" —a long-term strategy that outlines upcoming tax changes, providing companies with certainty to plan their investments.
Industry Insights: As businesses await clearer guidance from the government’s fiscal plans, many are choosing to stay cautious. The combination of slower wage growth, cooling demand, and potential fiscal changes is forcing firms to rethink their strategies, balancing immediate cost management with longer-term growth ambitions. For now, the focus is on navigating an economic environment that remains both uncertain and complex.
