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The 2024 economic landscape for SMEs

The 2024 economic landscape for SMEs
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The 2024 economic landscape for SMEs
Siobhan Stirling - Sharp Minds Communications for Capital Space by Siobhan Stirling - Sharp Minds Communications for Capital Space
Owner/Director - Sharp Minds Communications Ltd

If you run a business, it’s impossible to ignore macro-economics and socio-political trends. It’s not that long since supply problems post the pandemic and Brexit brought some sectors to a grinding halt, while the intervening months have highlighted how inflation, interest rates and election results can impact consumer and business confidence. As an economics graduate, Siobhan Stirling, founder of Sharp Minds Communications, always keeps an eye on the bigger picture. She shares her thoughts on the key economic and political landmarks that small business owners should be looking out for in 2024.

A big year for elections

2024 is a red-letter year in the political cycle. With a general election almost certain in the UK and the presidency up for grabs in the US, it’s likely that the markets will be cautious and possibly slightly nervous at the prospect of change. Investors and forecasters always feel more comfortable with the devil they know, while the prospect of Trump moving back into the White House – at the time of writing, still the Republican favourite and ahead in the overall polls, despite the Colorado ruling that he is disqualified from running for president and numerous legal charges against him, including election interference, taking classified defence documents and falsifying business records– is enough to make even the most bullish take stock.

Apart from market nerves, what does the political cycle mean for business owners in the South East? It naturally tends to mean caution among entrepreneurs as well – many of us may be nervous about making big investments when the government is widely being tipped to change. But don’t be surprised if all the parties claim to be the party for business, so expect a number of announcements in the various manifestos designed to court your vote.

Significantly, the Chancellor’s Autumn Statement had very little in it for SMEs; it might well be that Jeremy Hunt was deliberately holding back new incentives to be able to have something to offer the business community in the spring budget, ahead of the general election. What could this look like?

What many business owners are after would be a cut in corporation tax, after the main rate was raised to 25% from 1 April 2023. It’s unlikely that this will be reversed only a year after coming into effect, even though it was a tax increase of more than 25% for businesses with profits of over £250,000. Analysis of Labour’s position is that they could deliver on the policy of their last manifesto to increase it to 26%, especially as there is a feeling within the party that lowering corporation tax benefits online giants such as Amazon and large multi-nationals, rather than the average brit.

Key economic milestones for SMEs

Potentially the biggest milestone for business owners managing their P&L was announced in the Autumn Statement: the increase in the National Living Wage (NLW) for workers over 21 from £10.42 to £11.44 an hour (a rise of 9.8%), and from £7.49 to £8.60 an hour for those aged 18-20 (a hike of 14.8%).

Even if all your staff are paid more than the NLW, the statutory increase from 1 April will almost certainly impact your business; understandably, people like to keep wage differentials, so the increase in NLW is likely to prompt employees up the pay grades to push for bigger salary increases, especially given the cost-of-living crisis and inflation across the last two years. This has the potential to trigger renewed wage-led price pressures. Combine this with the increase in energy bills from 1 January as the price cap goes up to reflect the increased cost of wholesale gas, and it’s likely that inflationary pressures will continue.

There was some good inflation news towards the end of 2023: in November the government hit its target of halving inflation before the end of the year (with the official rate recorded as 4.6%), with a further pre-Christmas boost when the November figure came out lower than expected at 3.9%, the lowest level for two years. However, in its most recent forecast the Office for Budget Responsibility was predicting that it would not return to the target level of 2% until the first half of 2025 , with this warning echoed by the Bank of England , which cautions that it does not expect inflation to be back to ‘normal levels’ (of around 2% a year) until 2025 , although it does advise that prices will go up less quickly than in recent years.  Despite the positive announcements on inflation in November and December 2023, ongoing increased costs for both businesses and homes in terms of salaries and energy bills are going to make it more challenging for the Bank of England's Monetary Policy Committee to try and hit the target 2%.

Inflation remaining higher than normal has an obvious follow-on: higher interest rates, which in turn put pressure on household budgets and businesses servicing debts, as well as deterring business investments.  However, the Autumn Statement made full expensing for investment in plant and machinery permanent, so that may encourage some business leaders to make investments needed to fuel productivity.

Of course, as the pandemic and the war in Ukraine both showed, the economy can change unpredictably overnight, making crystal-ball gazing notoriously hard – it will be interesting to review this towards the end of the year to see if I have been any more accurate than the pundits who pontificate on big and small screens. But with major elections likely both at home and in the US, one thing I do feel confident in predicting is that it is unlikely to be a boring 12 months.

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