The Business of Economics: UK FDI attractiveness
Welcome back to The Business of Economics newsletter. If you're just joining, I'm excited to have you aboard for this monthly dive into the currents of the UK economy.
As promised, we're here to provide you with the insights you need to navigate the ever-shifting economic landscape but before we go into the updates, let's take a moment to reflect on the latest happenings.
The EY UK Attractiveness Survey 2024 went out earlier this month so I have included the key points below.
Make sure to hit the subscribe button to get the next edition straight to your inbox.
EY UK Attractiveness Survey 2024
?? UK records 985 FDI projects in 2023, up 6% from 2022 and remains 2nd for FDI performance in Europe
?? Total FDI projects in Europe were down by 4% from 2022, as France and Germany, the other two countries completing the top three, recorded a decline
?? The UK’s share of FDI investment increased to 17.3%, up from 15.6% recorded in 2022
?? The performance of UK’s FDI growth has been driven by a resurgence in digital investment, securing over a quarter of European’s tech projects
Read more here ?? EY UK Attractiveness Survey 2024
Five things you need to know about macro
1. The UK economy bounced back from a recession in Q1 2024
GDP grew by 0.6% in Q1 2024, marking the strongest growth since Q4 2021 and ending the shallow recession that began in H2 2023.
Business surveys show signs of gathering momentum with the composite PMI for the services and manufacturing sectors jumping to 54.0, indicating an economic expansion.
Business impact: The UK economy has started 2024 on stronger footing. Consumer confidence should improve, and business investment to pick up as the economy returns to growth.
2. Inflation fell to 2.3% in March, although services inflation remain sticky
Inflation has fallen to 2.3%, within touching distance of the BoE 2.0% target. This is largely the result of a 12% fall in the regulatory cap on household bill last month due to a decline in wholesale gas prices.
领英推荐
However, UK services inflation – a critical indicator of underlying price pressures in the economy - remained stubbornly high in April. This will worry the BoE as it suggests inflation is proving stickier than expected.
Business impact: Businesses will continue to see a cooling of cost pressures, and so less pressure to push prices.
3. Sticky inflation plus a still-tight labour market, will likely push back a first rate cut until the Autumn
Total pay is still growing at 6% per annum, and while there are signs of cooling labour demand – high levels of inactivity and falling employment remain a cause for concern to the Bank of England.
This will likely rule out a June rate cut – with the market now pricing in two cuts of 25bps each, starting in September.
Business impact: A delay in rate cuts will act as a drag on corporate borrowing and M&A activity – and may also lead to crystallisation of business stress as companies refinance.
4. Higher for ‘slightly’ longer interest rates could bring an end to the FTSEs recent rally
The FTSE-100 has enjoyed a rally in recent weeks, partly driven by expectation of earlier rate cuts and hence a weaker pound – this may now stall as expectations on first rate cuts are pushed back.
However, the FTSE-100 still looks good value compared to its peers, with its recent rally lagging European and particularly US peers.
Business impact: The FTSE rally may have stalled for now, but UK equities still look cheap and hence will continue to attract opportunistic bids supporting a recovery in M&A volumes.
5. Latest data on government finances probably forced the government’s hand on election timing as it ruled out any further tax give-aways
Borrowing in April rose to ￡20.5 billion, the 4th highest April borrowing since monthly records began back in in 1993. This was partly pushed up by falling National Insurance Contributions.
With public debt levels at their highest since the 1960s, the Conservatives are limited in their ability to implement tax cuts – equally any new Government will face constraints on borrowing to fund investment.
Business impact: An early election is likely a positive for households and business regardless of the poor state of the public finances – as it prevents any further uncertainty.