The UK economy expanded by just 0.1% from July to September 2024, as announced in the most recent official data release.
The growth was less than anticipated, and the Office for National Statistics (ONS) reported that most sectors experienced subdued activity over the quarter.
Labour, having prioritised economic growth upon assuming power, found Chancellor Rachel Reeves expressing dissatisfaction with these figures, which represent the initial three months of the new administration.
Several economists have attributed the uncertainty surrounding the contents of October’s Budget as a factor impeding growth.
This impact was notably pronounced in September, when the economy saw a contraction of 0.1%.
Moreover, the government is contending with criticism from certain businesses that are opposed to the tax increases introduced in the Budget.
Whichever way you look at these figures; they’re utterly dire.
As of September 2024, the UK’s national debt stands at £2,685.6 billion, which is approximately 100% of the country’s GDP. This is the highest level of public sector debt since 1961.
UK debt and its borrowing
As of 2024, the United Kingdom’s national debt has reached a staggering £2,685.6 billion, an amount equivalent to the nation’s GDP. This surge in debt, driven by persistent borrowing, has sparked significant economic and political debate.
Historical context
The UK’s debt levels have fluctuated over time, influenced by wars, recessions, and policy decisions. However, the current debt level marks a significant peak not seen since the early 1960s.
The Financial Crisis of 2008 saw the debt-to-GDP ratio rise sharply as the government borrowed heavily to stabilize the banking sector and stimulate the economy. More recently, the COVID-19 pandemic necessitated extensive government borrowing to fund health services, furlough schemes, and business support measures, exacerbating the debt situation.
Government borrowing
Government borrowing, or public sector net borrowing, is the amount by which government expenditures exceed its revenues. This borrowing is essential for funding various public services, infrastructure projects, and welfare programs.
While borrowing can be a tool for stimulating economic growth, especially during downturns, it also raises concerns about fiscal sustainability and the burden on future generations.
Economic Implications
High levels of national debt can have profound economic implications. On the one hand, government spending can stimulate economic activity, create jobs, and drive growth. However, excessive borrowing can lead to increased interest payments, diverting resources from essential services like healthcare and education.
Additionally, high debt levels can reduce investor confidence, potentially leading to higher borrowing costs for the government and businesses.
Debt management strategies
The UK government employs various strategies to manage its debt. These include issuing government bonds to investors, which provide a relatively low-cost means of borrowing. The Bank of England also plays a crucial role, particularly through its monetary policies, such as setting interest rates and implementing quantitative easing programs.
The government’s fiscal policy, which includes tax and spending measures, is another key component in managing the debt.
The future
Looking ahead, the UK’s debt trajectory will depend on several factors, including economic growth rates, government policy decisions, and global economic conditions.
While reducing the debt burden is a priority, balancing fiscal responsibility with the need for economic stimulus remains a delicate act. Policymakers must navigate this complex landscape to ensure long-term economic stability and prosperity for future generations.
UK debt in direct relation to UK GDP from 1980 – 2024
Since the 1950s, UK debt has gone through several cycles. Post-World War II, debt was high due to reconstruction efforts.
The 1980s saw a decline in debt, thanks to privatisation and reduced public spending. However, the 2008 financial crisis caused a sharp increase, followed by more borrowing during the COVID-19 pandemic, reaching 100% of GDP in 2024.
UK public sector borrowing
Public sector debt as a proportion of GDP
How does the UK government borrow money?
The government raises funds by issuing financial instruments known as bonds. A bond represents a commitment to repay borrowed money in the future, typically with periodic interest payments until maturity.
UK government bonds, or ‘gilts’ are generally regarded as secure investments, carrying minimal risk of non-repayment. Institutions both within the UK and internationally, including pension funds, investment funds, banks, and insurance companies, are the primary purchasers of gilts.
Additionally, the Bank of England has purchased substantial amounts of government bonds in the past as an economic stimulus measure through a mechanism known as ‘quantitative easing’.
How much is the UK government borrowing?
The government’s borrowing fluctuates monthly. For example, in January, when tax returns are filed, there’s typically a surge in revenue as many pay a significant portion of their taxes at once. Therefore, it’s more informative to consider annual or year-to-date figures.
In the financial year ending March 2024, the government borrowed £121.9 billion. The latest data for September 2024 indicates borrowing at £16.6 billion, up by £2.1 billion compared to September 2023.
The national debt refers to the total amount owed by the government, which stands at approximately £2.8 trillion. This figure is comparable to the gross domestic product (GDP) of the UK, which is the total value of goods and services produced in the country annually.
The current debt level has more than doubled since the period from the 1980s up to the 2008 financial crisis. Factors such as the financial crash and the Covid pandemic have escalated the UK’s debt from its historical lows to where it is now.
However, when considering the economy’s size, the UK’s debt is relatively low compared to much of the previous century and to that of other major economies.
How much money does the UK government pay in interest?
As the national debt increases, so does the interest that the government must pay. This additional cost was manageable when interest rates were low throughout the 2010s, but it became more burdensome after the Bank of England increased interest rates.
The government’s interest payments on the national debt are variable and reached a 20-year peak in early October 2023. Approximately a quarter of the UK’s debt is tied to inflation, meaning that payments increase with rising inflation.
This situation led to a significant rise in the cost of debt service, though these payments have begun to decrease. If the government allocates more funds to debt repayment, it could result in reduced spending on public services, which were the original reason for the borrowing.
In conclusion, while the UK’s debt and borrowing levels present challenges, strategic management and informed policy decisions will be crucial in navigating the path forward.
The UK debt total vs GDP is now as of 2024 all but 100%
UK inflation fell unexpectedly to 1.7% in the year to September 2024, the lowest rate in three-and-a-half years
This indicates that inflation, which is the rate at which prices increase over time, is currently below the Bank of England’s target of 2%, potentially leading to further reductions in interest rates next month.
The Office for National Statistics (ONS) reported that petrol and diesel prices saw a notable decrease, falling by 10.4% in September 2024compared to the same month the previous year.
Additionally, the cost of fares for domestic, European, and long-haul flights contributed to the lower inflation rate. While fares typically decrease after the summer peak, this year they have reduced more than usual.
UK interest rate at 1.7% below the Bank of England target of 2%
UK interest rate at 1.7% below the Bank of England target of 2%
With inflation dropping below economists’ expectations, the markets are anticipating a cut in interest rates at the Bank of England’s upcoming meeting in November 2024. The present rate stands at 5%, and a reduction of 0.25% is now deemed highly probable.
The UK Labour government aimed to attract foreign investment on Monday 14th October by hosting its first International Investment Summit in London
Prime Minister Keir Starmer, Chancellor Rachel Reeves, and Business Minister Jonathan Reynolds headed the one-day event at London’s Guildhall, with an attendance of approximately 200 executives from both the UK and abroad.
Notable attendees were former Google Chairman Eric Schmidt, Goldman Sachs CEO David Solomon, BlackRock CEO Larry Fink, and GSK CEO Emma Walmsley. Poppy Gustafsson, the newly appointed Investment Minister and co-founder of the British cybersecurity company Darktrace, were also present to advocate for the UK as a favourable business environment.
The UK government unveiled a relaxation of regulations and announced investment deals worth billions of pounds in sectors such as artificial intelligence, life sciences, and infrastructure, while Starmer proclaimed it’s ‘a great moment to back Britain.’
‘We will rip out the bureaucracy that blocks investment and we will make sure that every regulator in this country take growth as seriously as this room does,‘ Starmer reportedly told delegates.
UK Prime Minister Keir Starmer on Monday 14th October 2024 vowed to slash regulatory red tape to boost investment in the country.
“We’ve got to look at regulation across the piece, and where it is needlessly holding back investment … mark my words, we will get rid of it,” he reportedly told delegates at the UK’s International Investment Summit.
The government on Sunday 13th October 2024 announced the launch of a new industrial strategy, designed to focus on eight “growth-driving sectors.”
The prime minister reportedly restated that growth was the “No. 1 test of this government,” and reiterated plans for the U.K. to become the fastest-growing G7 economy.“
Starmer also outlined stability, strategy, regulation and improving Britain’s global standing as “four crucial areas” in his pitch for Britain.
“Private sector investment is the way we rebuild our country and pay our way in the world,” Starmer said
In a panel discussion with Starmer, Google’s ex-CEO Eric Schmidt expressed his surprise upon learning that the Labour party had shifted to ‘strongly’ support growth.
Schmidt is eager to see the execution of this approach and encouraged the government to increase investment in artificial intelligence to fulfill broader growth objectives.
Electric car sales to private buyers are 6.3% lower so far in 2024 despite £2 billion of manufacturers discounts
Electric car sales in the UK are facing challenges despite the growth in the number of electric vehicles (EVs) on the roads. The Society of Motor Manufacturers and Traders (SMMT) has indicated that the proportion of EV sales has not surpassed 18%, with the market mainly propelled by fleet operators, not private consumers.
It has been suggested that the industry will struggle to meet the government target of 22% of new car sale in 2024 being ‘zero-emission vehicles’.
Contributing factors to this slowdown include the high costs, a limited public charging infrastructure, and range anxiety.
Nonetheless, September 2024 saw a record number of new electric car registrations, exceeding 56,000. Yet, the long-term viability of these figures is uncertain, as they were bolstered by substantial discounts.
And yet the electric car still remains an equally expensive option by direct comparison.
In August 2024, the U.K. economy experienced a 0.2% growth on a month-on-month basis, according to preliminary figures released by the Office for National Statistics on Friday 11th October 2024.
But there is a warning of a potential UK slowdown despite the August pick-up.
Over the three months leading to August, Britain’s economic growth also registered a 0.2% increase, which was marginally below the expectations of economists.
A rebound in construction and a robust month for accountancy, manufacturing, and retail sectors contributed to a 0.2% boost in the economy, following a stagnation in growth over the prior two months.
However, the Office for National Statistics (ONS) noted that economic growth has been weaker relative to the first half of the year and of a potential slowdown.
Last month, the average UK house price nearly reached a record high, buoyed by decreasing mortgage rates that have lifted buyer confidence, Halifax reports.
Halifax, the UK’s largest mortgage lender, noted that the average house price climbed to £293,399 in September 2024, narrowly missing the record of £293,507 set in June 2022.
According to Halifax, house prices have been on an upward trend for three consecutive months as market conditions have improved.
Easier mortgage affordability, driven by robust wage increases and declining interest rates, has enhanced confidence among buyers, leading to a rise in the number of mortgages agreed upon over the past year.
Halifax has recorded a 4.7% increase in house prices compared to the previous year, marking the most rapid growth rate since November 2022.
Increase in VAT: Adjusting the Value Added Tax (VAT) rate could generate substantial revenue.
Pension Tax Relief: Limiting pension tax relief to the basic rate of income tax could raise around £15 billion per year. Pension tax relief raid.
Windfall Tax: Increasing the windfall tax on the profits of oil and gas companies could also contribute significantly.
General Tax Increases: N.I., Income Tax, Capital Gains Tax, Inheritance Tax,
Public Sector Efficiency
Improving Productivity: Enhancing public sector productivity by just 5% could deliver up to £20 billion in benefits annually.
New Taxes or Levies
Green Taxes: Introducing or increasing taxes on carbon emissions and other environmental levies could help raise funds while promoting sustainability.
Digital Services Tax: Expanding the scope of the digital services tax to cover more online businesses could also be a potential revenue source.
Electric vehicle tax: new tax bands for electric cars
Spending Cuts
Reducing Public Expenditure: Identifying and cutting down on non-essential public spending could help balance the budget.
Economic Growth
Stimulating Growth: Policies aimed at boosting economic growth, such as investing in infrastructure and innovation, could increase tax revenues indirectly by expanding the tax base. But this will take time to fully materialise.
Each of these measures comes with its own set of challenges and implications, so the government would need to carefully consider the economic and social impacts before implementation.
Black hole?
The Chancellor has recently pointed to a ‘black hole’ in the public finances, referencing the recent uncovering of an ‘unbudgeted’ £22bn overspend in the current tax year following her tenure commencement at No. 11 Downing Street in July.
The reality of this newfound deficit is subject to debate. However, given that the Chancellor has ruled out the possibility of borrowing for day-to-day expenses, it seems she very likely she might be compelled to raise taxes to offset these expenditures.
N.I. and Pension raid?
In its last year, the Conservative government cut taxes by £20 billion by reducing the National Insurance rate. Reversing this cut would be a direct way to increase revenue, taking us back to the financial situation before last November.
Currently, many people receive a 40% tax relief on pension contributions but are taxed at 20% when they withdraw. This ‘inconsistency’ could easily become a target for the Chancellor.
Additionally, employers’ National Insurance contributions are not applied to pension contributions or withdrawals, and individuals can even take a tax-free lump sum from their pension after having received tax relief on their contributions.
Understanding the complexities is not necessary to see that a chancellor in search of extra tax revenue may consider pension contributions as a significant source of additional income.
The UK budget is due on: 30th October 2024 – let’s see just by how much UK taxes are increased – because they will be.
The UK’s economic growth for the period between April and June 2024 was lower than initially estimated, as reported by the ONS
The Gross Domestic Product (GDP), which quantifies the economic activity of companies, governments, and individuals within a country, increased by 0.5%, a revision from the preliminary figure of 0.6%.
Both the manufacturing and construction sectors experienced greater declines than initially calculated.
This information comes to light as the Labour government, which prioritises economic growth, gears up to present its first Budget at the end of October 2024.
The Office for National Statistics (ONS), the publisher of these statistics, noted a significant 3.1% decrease in the production of transport and related equipment during this quarter, following a sustained period of expansion, a stark contrast to the initially estimated 0.7% decrease.
The ONS indicated that this downturn could be attributed to factories scaling back production in anticipation of the transition towards electric vehicle manufacturing.
Additionally, the construction sector saw a downturn, continuing the trend of decreased new home construction.
However, the ONS said that the outlook was improving.
Labour’s proposal to dismantle the UK’s non-dom tax system may lead to an exodus of the ultra-wealthy, as advisors and research bodies have cautioned.
Switzerland, Monaco, Italy, Greece, Malta, Dubai, and the Caribbean are becoming popular relocation destinations, sensing the apprehension among affluent investors.
Meanwhile, London’s super-prime real estate market could experience a decrease in transactions, although this may present opportunities for wealthy U.S. and other global buyers.
Nearly two-thirds (63%) of affluent investors have indicated they would depart from the U.K. within two years or ‘sooner’ if the Labour government proceeds with its intention to abolish the colonial-era tax concession.
Furthermore, 67% stated they would have chosen not to migrate to Britain initially, as per a recent Oxford Economics study evaluating the impact of these plans.
The UK’s non-dom regime, a tax rule with a 200-year history, allows individuals residing in the UK but domiciled elsewhere to not pay tax on foreign income and capital gains for up to 15 years. As of 2023, an estimated 74,000 people enjoyed the status, up from 68,900 the previous year.
Labour last month set out plans to abolish the status, expanding on a pledge set out in its election manifesto
In the first half of this year, pharmacies, pubs, and banks accounted for half of the closures on Britain’s High Streets, according to data. A total of 6,945 stores have shut down in 2024, averaging 38 closures per day
Taking new store openings into account, the net closure rate stands at 12 stores per day, a slight increase from the previous year.
Research by accountancy firm PwC reportedly indicates that each week, an average of 18 pharmacies, 16 pubs, and nine banks closed from January to June 2024.
In contrast, only three convenience stores and one café chain have opened, underscoring the significant transformations occurring in town centres.
The previous year recorded a net closure rate of 11 stores per day.
UK data centres are set to be classified as critical national infrastructure (CNI), aligning them with sectors such as emergency services, finance, healthcare, and utilities
This classification will ensure they receive additional government support during major incidents like cyber-attacks, IT outages, or severe weather, to reduce disruption.
Data centres, large warehouses filled with extensive computer banks, are the backbone of services like AI applications, data processing, and streaming. Despite facing criticism for their energy and water usage, the new Labour government supports the industry, with Technology Secretary Peter Kyle referring to data centres as ‘the engines of modern life.’
Currently, the UK recognises 13 sectors as critical national infrastructure, a list last revised nine years ago with the addition of space and defence.
British Technology Minister Peter Kyle announced on Thursday 12th September 2024 that UK data centres will be designated as ‘Critical National Infrastructure’ (CNI). This status, typically reserved for essential national sectors like nuclear power, provides data centre operators with a direct communication channel to the government for threat preparation and response.
Furthermore, the government has expressed support for a proposed £3.75 billion data centre by UK company DC01UK in Hertfordshire, England, which is projected to be the largest in Europe upon completion.
The UK’s economy did not experience growth in July 2024, continuing the stagnation from June 2024, as indicated by official data
Analysts had anticipated a modest growth of 0.2% for July. However, the Gross Domestic Product (GDP) fell short of the expectations set by economists surveyed by Reuters, who had predicted a 0.2% increase. Additionally, the country experienced no GDP growth in June 2024.
In July 2024, Britain’s predominant services sector experienced a slight increase of 0.1%, while production and construction outputs declined by 0.8% and 0.4%, respectively.
The UK’seconomic growth rose by 0.5% in the three months leading up to July 2024, which was marginally below the expectations of economists and the 0.6% growth seen in the second quarter ending in June.
The services sector received a boost from a summer filled with sports events, including the Euros and the Olympics, despite the downturn in production and construction outputs.
The absence of growth for another month poses a significant challenge for the new Labour government, which has prioritised economic stimulation.
Despite no growth in July 2024, the Office for National Statistics (ONS) noted that the services sector showed strength over the last three months as a whole. Growth was primarily driven by computer programmers and the health sector, which bounced back from June’s strike action.
However, there was a decline in output from the advertising, architecture, and engineering sectors, according to the ONS. Car and machinery firms experienced a particularly challenging month.
While the ONS tracks gross domestic product (GDP) monthly, greater emphasis is placed on the three-month trend. Monthly figures, being preliminary estimates, are often subject to minor revisions as more data becomes available.
The Australian property listing company REA Group announced on Wednesday that its £5.6 billion ($7.32 billion) cash-and-stock bid to take over Rightmove, Britain’s largest real estate portal, was rejected.
REA Group, which is 62% owned by Rupert Murdoch’s News Corp, reportedly did not provide a reason for Rightmove’s refusal of the offer.
Analysts have noted that Britain’s housing market is three times larger than Australia’s. A successful deal would have accelerated REA’s expansion into profitable international markets.
The rise came after a significant drop in sales volumes, which track the amount purchased, in June due to unfavorable weather affecting demand.
Last month, department stores and retailers of sports equipment saw an uptick in the volume of goods sold thanks to the Euro football tournament.
However, the Office for National Statistics (ONS), which provided the data, noted that it was a challenging month for clothing and furniture retailers, with fuel sales declining even as prices at the pump decreased.
The U.K. economy grew by 0.6% in the second quarter of 2024, the Office for National Statistics said Thursday 15th August 2024, in line with expectations.
The data release follows an expansion of 0.7% in the first quarter of 2024.
Economic growth was flat in June, in line with forecasts.
The UK economy has shown modest yet consistent growth each month this year, marking an exit from a mild ‘technical’ recession. Additionally, GDP remained unchanged in April, influenced by wet weather that impacted retail sales and construction activity.
Growth was led by the services sector, in particular the IT industry, legal services and scientific research.
This indicates that overall prices increased by 2.2% in the year leading up to July, a rise from 2% in June, surpassing the Bank of England’s target.
The anticipated increase is primarily attributed to the less significant drop in gas and electricity prices compared to the previous year.
The Bank of England reportedly anticipates a further increase in inflation this year before it declines again.
The core inflation rate, which is the Consumer Price Index (CPI) excluding food, energy, alcohol, and tobacco prices, was reported at 3.3% in July, a slight decrease from 3.5% in June, according to the statistics office.
Additionally, service inflation, which the Bank of England (BoE) monitors closely, decreased to 5.2% in July from 5.7% the previous month, yet still remains elevated.
These inflation statistics follow the release of data on Tuesday 13th July 2024, which revealed that the average wage growth excluding bonuses was 5.4% from April to June year-on-year, the lowest in two years.
Concurrently, the unemployment rate dropped to 4.2% during this period, down from 4.4% between March and May 2024.
Official figures indicate a slight decrease in the UK’s unemployment rate, which was 4.2% in the three months to the end of June 2024, a drop from the previous quarter’s 4.4%.
In contrast, UK wage growth has decelerated, with an annual increase of 5.4%, marking the lowest rate in approximately two years.
Not all positive
The Office for National Statistics (ONS) has acknowledged some positive developments, yet it also noted indications of a ‘cooling’ job market, evidenced by an increase in job vacancies, a rise in redundancies, and a persistently high number of individuals not actively seeking employment.
This trend emerges as businesses are grappling with escalating operational costs and potentially reducing their recruitment efforts.
U.S. shares gained on Tuesday 6th August 2024, signalling a tentative stabilisation in global markets after a period of significant declines.
The Nasdaq, known for its tech-centric portfolio, along with the Dow Jones Industrial Average and the S&P 500, all ended the day in more positive territory.
This ‘lift’ came after a period of muted activity in UK and European markets, with London’s FTSE 100 experiencing an initial surge before retreating.
The recent turmoil in the stock market was triggered on Friday 2nd August 2024 by unsatisfactory U.S. job data for July 2024, which indicated an increase in unemployment, raising alarms over a potential recession.
Additionally, there has been growing apprehension that stocks of major technology firms, especially those with significant investments in artificial intelligence (AI), may have been excessively valued, leading to challenges for some of these companies.
The new Labour government has withdrawn £1.3bn in funding previously pledged by the Conservatives for technology and Artificial Intelligence (AI) initiatives.
This includes £800m allocated for the development of an exascale supercomputer at Edinburgh University and an additional £500m for the AI Research Resource, which provides computing power for AI. These funds were announced less than a year ago.
The Department for Science, Innovation and Technology (DSIT) stated that although the funds were promised by the former administration, they were not included in its budget. The decision has faced criticism from some within the industry.
Highest ratio since the 1960’s and even higher than that reached during the Covid pandemic of 2020.
The UK’s national debt has reached its highest level since 1962.
Official figures from the ONS show that the total government debt amounted to 99.5% of the economy’s value in June 2024, surpassing the peak levels experienced during the coronavirus pandemic.
The current debt level is comparable to that last observed in the early 1960’s.
The pound reached its highest level against the dollar in a year on Wednesday 17th July 2024, as investors wagered that UK interest rates would remain elevated for longer.
New data released on Wednesday 17th July 2024 indicated that inflation was more persistent than some analysts had anticipated, leading traders to reduce their expectations of a rate decrease in August 2024, propelling the pound above $1.30 for the first time since the previous July.
Additionally, the pound’s strength has been supported by market optimism that the newly elected Labour government will provide economic stability.
U.K. inflation matched the Bank of England’s target of 2% in June 2024, as calculated by data from the Official for National Statistics on Wednesday 17th July 2024.
The main figure was slightly higher than the 1.9% forecast by analysts surveyed by Reuters, aligning with May’s 2% figure.
Following the announcement, the value of Sterling increased modestly, reaching $1.2977 at 7:21 a.m. British Summer Time.
The Bank of England (BoE) closely monitors services inflation due to its significant role in the U.K. economy and as an indicator of domestic price increases, which remained at 5.7% in June. Service inflation remains a stubborn issue and a problem still for the BoE.
The core inflation rate, which excludes energy, food, alcohol, and tobacco, stood at 3.5%, consistent with the rate seen in May 2024.
Burberry shares slide on Monday 15th July 2024 after the UK luxury fashion group announced a profit warning and a dividend halt and said its chief executive officer (CEO) was being replaced.
The maker of the iconic trench coat described a ‘disappointing’ fiscal first-quarter 2025 in a trading update.
Burberry reportedly said that if the recent trading slowdown continues, it expects to report an operating loss for the first half of this year and full-year operating profit below current consensus.
Shares in the 168-year-old British luxury giant were down 15% on Monday 15th July 2024 in early London trading.
Burberry share price falls to around 745 on Monday 15th July 2024 – one year share price chart
Burberry share price falls to around 745 on Monday 15th July 2024 – one year share price chart
