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Lower interest rates, lower cost inflation and less political interference… bring on 2024

by Eamonn McMahon

Some businesses thrived in 2023. Good for them!

But for many of us, 2023 wasn’t a year of jubilation – it was a year of hard focus, digging deep..survival even? I certainly picked up the phone more, slashed costs and squeezed the bejaysus out of every discount I could find. Faced with an array of challenges; higher energy costs, higher finance costs, higher labour costs and damp consumer confidence, this last year was tough across the economy. Not by any stretch 2009 territory, but 2023 most certainly wasn’t a jolly to Brighton.

The good news is 2024 is looking brighter.

Credit: Andrea DeSantis

Reasons to be positive on 2024:

1. Less of a labour squeeze and a growing confidence that productivity might finally improve. After the madness of the pandemic and the explosion of workplace diversion/distraction/politics, we are starting to see workers become more productive. Baby steps for now but we are getting back on our feet.

2. Lower cost inflation.

Food processors, transport providers, the hospitality industry, the entertainment industry…. the list of sectors that have been hurt from cost inflation in 2023, and who were unable to pass on those costs in the form of higher prices, is almost endless. We came into this year with PPI (the inflation gauge that best measures costs for producers) sky-high at almost 20%. In part because of higher interest rates having the desired effect, but probably more because of Brexit and imports settling down, this ‘cost inflation’ has been greatly reduced and in 2024, economists expect to see it hover in the 2-5% region.

3. Lower financing costs.

A combination of lower interest rates and greater competition in financial services and fintech, should lead to lower rates across products, from invoice finance to overdrafts to asset finance. The below curve maps out the fall in the 2 year forward rate.

4. Less political interference

It is almost certain that late 2024 will see a general election which means politicians won’t want to shake the boat too much. Also, with both the Prime Minister and the Leader of the Opposition facing splits in their own parties, we are unlikely to see anything too radical.

In the Autumn statement, the chancellor, Jeremy Hunt, reigned back in stricter R&D credit eligibility and reduced the burden of National Insurance contributions. The government finally seem to ‘get it’ on the crippling effect of rates and have made it clear that small business shouldn’t suffer excessively from vehicle tolls or emissions charges.

So, overall a positive picture – let’s be confident, and once the Christmas mince pies have been burned off, give it some welly, to make sure we can all party a little harder next year.