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Featured press releases

Regional UK economic growth gap to widen, with Southern England ahead

Economic momentum is set to return to all parts of the UK between 2024 and 2027, but London and the South East are forecast to see faster GVA growth than the UK average.

4 Mar 2024 London GB Rob Joyce

Bank lending to UK businesses forecast for <1% growth this year

UK bank-to-business lending is set to remain low this year, with growth of just 0.8% (net) forecast in 2024, according to the latest EY ITEM Club UK Bank Lending Forecast.

19 Feb 2024 London GB Victoria Luttig

Latest press releases

EY appoints new Transaction Diligence Leader in the North

EY has appointed John Divers, a Partner with over 20 years of experience in the deals market, as the firm’s new Manchester-based Transaction Diligence Leader for the North of England.

27 Mar 2024

EY strengthens South West Audit team with new Partner promotion

EY has strengthened its South West audit team with the promotion of Jemma Inker to Partner. Jemma originally joined EY in 2011 as an Audit Senior and has over 15 years’ experience.

20 Mar 2024

EY announces new Liverpool leader to spearhead growth

EY has announced Liz Jones as its new Liverpool Office Managing Partner. Liz is an audit Partner with over 25 years of experience and will be responsible for leading the firm’s growing team, based on the Albert Dock in Liverpool city centre.

14 Mar 2024

28 March 2024 | EY ITEM Club comments:

National accounts reaffirm recession last year, but better times are likely ahead

  • The Office for National Statistics’ (ONS) previous estimate of a contraction in GDP in Q4 was unrevised in the latest National Accounts, meaning the economy is still thought to have ended last year in recession. But the EY ITEM Club thinks the downturn is probably already over and that economic momentum should build this year. 
  • Fast-falling inflation means real household incomes should continue to rise, building on gains in the last quarter of 2023. Lower energy bills will boost consumers’ discretionary spending power, as will the cut in National Insurance Contributions (NICs) which comes into effect in April.
  • Still, the cost of living remains elevated compared to a few years ago and prospective interest rate cuts will take time to feed through to stronger activity. But the economy’s long period of stagnation should start to fade.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “The ONS’ previous estimate that the economy ended 2023 weakly saw no change in Q4’s national accounts. The fall in GDP during Q4 was left unrevised at -0.3%. And with no revisions to previous quarterly estimates, including Q3’s contraction in output, the latest data reaffirmed that the economy was in recession over the second half of last year.

“The weak starting point for GDP this year means calendar-year growth in 2024 is likely to be limited to less than 1%. However, an acceleration in momentum this year remains on the cards. Fast-falling inflation will support further growth in real incomes, a development evident in Q4 2023 when household income rose 0.7% quarter-on-quarter, up from zero growth in Q3. Double-digit percentage falls in household energy bills in April and, as now seems increasingly likely, July, will also boost disposable spending power further. Meanwhile, next month’s cut in NICs will offer some modest support to post-tax incomes.    

“However, the cost of essentials such as food and energy remains much higher than a few years ago. The structure of the mortgage market and the impact of lower interest rates on the interest windfall received by savers also mean prospective rate cuts this year may prove a slow-burner in stimulating the economy. And households’ elevated appetite to save, with the saving ratio reaching a 10-quarter high of 10.2% in Q4, suggests a degree of caution among consumers. But the EY ITEM Club thinks 2024 will see an end to the stagnation which has characterised the UK economy over the last two years.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

22 March 2024 | EY ITEM Club comments:

February's retail weakness may prove temporary

  • A flatlining in retail sales volumes in February brought the previous month's rebound to a halt. But anecdotal evidence suggested unusually wet weather weighed on retail spending in some categories. Sales are on track to grow strongly in Q1, helping to drive a recovery in GDP. And the conditions remain in place for the retail recovery to continue this year.
  • A significant fall in inflation, led by decreasing energy prices, will boost household spending power. And the tax cuts announced in the Spring Budget will go some way to offsetting the drag on household incomes from previously announced tax rises.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Following a poor end to last year, retail sales volumes rebounded strongly in January. But February showed the recovery stalling. Sales recorded no growth last month, albeit flatlining marked a slightly better performance than consensus expectations of a 0.3% month-on-month fall. Although a strong increase in clothing sales meant non-food store sales saw a decent rise, this was offset by declines in purchases of food, household goods and fuel. 

“However, the EY ITEM Club wouldn't put too much weight on February's performance as a guide to the outlook for retailers. February was one of the wettest on record. This looks to have supported online spending but, according to anecdotal evidence received by the Office for National Statistics (ONS), reduced footfall in physical stores. And the fact that fuel sales had rebounded to an unusually high level in January meant some payback was likely the following month, a retreat which a rise in pump prices in February will likely have exacerbated. 

“The strength of January's retail performance means sales volumes still look on course to grow strongly in Q1 - another reason to think that the economy's contraction over the second half of last year was short-lived. And the EY ITEM Club thinks the ingredients are in place for a retail recovery to continue through this year. 

“Most importantly, real incomes will be boosted by a substantial fall in inflation, with the Consumer Price Index (CPI) measure likely to fall to below 2% in April and decline further in the second half of this year. The cut in National Insurance Contributions (NICs) announced in the Budget will also offer a modest boost to household spending power, if only partly offsetting fiscal drag from previous tax rises. And while the likelihood of interest rate cuts from the summer probably won't do much to boost spending this year, lower borrowing costs should improve consumer sentiment. On that note, the latest GfK survey showed consumers' confidence in their own financial situation in March hitting the highest levels in over two years.” 

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

21 March 2024 | EY ITEM Club comments:

MPC takes a more dovish tone

  • The Monetary Policy Committee’s (MPC) latest interest rate decision took on a more dovish tone than expected. A majority supported keeping Bank Rate at 5.25%, but two members dropped their previous votes for a rate rise. The committee was also explicit that cutting rates would leave policy still in restrictive territory. And there were hints that it may not take much for some members currently favouring no change in policy to switch to supporting a rate cut.
  • The majority on the MPC cited stickiness in private sector pay growth and services inflation, a still tight jobs market and upside risks to the Bank of England’s inflation and pay growth forecasts in favour of keeping monetary policy on hold.
  • Still, the EY ITEM Club thinks the case for cutting rates soon remains strong. Lower energy prices mean inflation is likely to fall below the Bank of England’s 2% target in April and remain sub-target for the rest of the year. And timelier indicators of pay growth compared to the standard year-on-year measure have already fallen to a pace consistent with the 2% goal.
  • While the MPC’s cautious language and the effect of April's large rise in the national living wage on broader pay growth could mean rate cuts are delayed further, the EY ITEM Club thinks the force of events will push the MPC to start cutting Bank Rate in June.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Since the MPC last met in February, any surprises in the economic data have not been significant enough to prompt a reappraisal of the outlook for inflation or the economy. Indeed, in this latest March meeting, a majority on the committee continued to support keeping the Bank Rate at 5.25%. But the two members who had supported raising rates in February joined the majority in voting for no change in rates this time around.

“The majority on the MPC cited persistently high pay growth, the slow fall in services price inflation and upside risks around the Bank of England’s wage and inflation forecasts as reasons to keep monetary policy relatively tight. The committee as a whole also gave no explicit signal beyond February’s language that it is considering rate cuts, sticking to saying that policy needs to be ‘sufficiently restrictive for sufficiently long’, but that they ‘will keep under review for how long Bank Rate should be maintained at its current level’. 

“That said, the policy statement noted that there were varying views among MPC members on the extent to which risks from stubborn inflationary pressures had faded. This suggests that it may not take much for some of the majority to switch to supporting a rate cut. The statement also acknowledged for the first time that cutting rates would leave policy still in restrictive territory.

“The EY ITEM Club thinks the MPC may find it challenging to maintain a no-change position longer term. As of February, the level of consumer prices had seen little rise over the previous six months, meaning shorter-term measures of inflation are already below 2%. For example, on a three-month-on-three-month annualised basis, which better captures recent trends than the year-on-year measure, inflation in February was only slightly above zero. Lower energy prices point to annual Consumer Price Index (CPI) inflation falling below the Bank of England’s 2% target in April and remaining sub-2% for the rest of this year. While the MPC can cite base effects and core price pressures in arguing that headline inflation doesn’t give the full picture, it is that headline measure which the Bank of England is tasked with targeting. 

“Meanwhile, even those underlying drivers of inflation which have prompted the MPC’s concern are starting to look more benign. The large month-on-month rises in pay in the first half of 2023 will drop out of the annual measure over the next few months, meaning that headline wage growth should come down quickly by the summer. And timelier measures of pay growth have already slowed to a pace broadly consistent with the inflation target. On a three-month-on-three-month annualised basis, growth in private sector pay in January stood at 3.3%. 

“Still, following accusations that policymakers were behind the curve in tightening policy when inflation was heading up, the MPC may well decide it’s appropriate to exercise further caution in bringing rates down. Assessing the effect of April's large rise in the national living wage on broader pay growth offers another reason for inaction for the time being. But the EY ITEM Club thinks the force of events will compel the MPC to shift its position by early summer and start cutting Bank Rate in June.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

21 March 2024 | EY ITEM Club comments:

More evidence of growth, but also sticky inflation

  • Although March's flash composite Purchasing Managers’ Index (PMI) dipped slightly, another 50+ reading offered more evidence that the economy has returned to growth in early 2024. The boost to real incomes from lower inflation and cuts in personal taxes mean that trend should continue.
  • The latest S&P Global survey was less positive on inflationary pressures, with growth in input costs still elevated and selling price inflation at an eight-month high. Following today’s survey, the EY ITEM Club thinks the Monetary Policy Committee (MPC) will decide to sit tight and keep the Bank Rate as it is this month.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Hopes that the economy may be breaking out of a long period of stagnation received further support from March's flash composite PMI. An index of 52.9, while marginally down from 53.0 in February, remained in growth territory for the fifth successive month. The dip in the composite PMI was more than accounted for by a fall in the flash services PMI to 53.4 from 53.8. However, the manufacturing output index rose to 50.2, signalling a return to growth in the sector for the first time in 13 months. 

“The PMI excludes the public sector, where output has been hindered by industrial action, so it may be overdoing the economy's strength in Q1. Nonetheless, there are good reasons why momentum in activity is improving and should continue to do so. Most important is the boost to real incomes from falling inflation. The cut in National Insurance Contributions (NICs) will also offer some support to household spending power.  

“The fact that the economy's contraction last year looks increasingly likely to have been short-lived is one reason why the MPC probably won't be in a rush to cut interest rates just yet. Another is concern that underlying inflationary pressures haven't yet eased sufficiently. March's survey is unlikely to calm that worry. The survey's measure of input cost inflation eased only slightly from February's six-month high, with respondents citing higher transportation costs and still-strong pay growth. And higher costs were passed through to prices, with growth in the latter the highest since July 2023. 

“All in all, evidence of healthier growth amid still-present inflationary pressures offers another reason to think the MPC will keep policy on hold when its next interest rate decision is announced later today.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

21 March 2024 | EY ITEM Club comments:

The fiscal deficit continues to decline

  • Public sector borrowing in February continued to fall year-on-year and was consistent with the Office for Budget Responsibility's (OBR) forecast for a deficit of just over £114bn in 2023-2024 as a whole. However, the fiscal outlook beyond this year is less certain and may depend on the policies of the next government.
  • The Labour Party has said that were it to win the next general election, it would follow the current government's primary fiscal rule of having the debt-to-GDP ratio falling in five years' time. That commitment and the narrow margin of safety against meeting that rule would limit any potential new government’s room for manoeuvre, at least in terms of borrowing more for investment or other priorities.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “February was the fourth successive month to see a year-on-year fall in public sector borrowing. A deficit of £8.4bn compared with £11.8bn in February 2023, when government spending had been boosted by energy support payments. Alongside lower subsidies, spending on debt interest also fell on the year, as lower Retail Price Index (RPI) inflation cut the cost of index-linked debt. Meanwhile, growth in tax receipts picked up to a seven-month high, consistent with signs of more momentum in the economy. 

“February's deficit took borrowing in the current fiscal year so far to £106.8bn. The OBR has yet to publish monthly profiles consistent with its March Budget forecast, so it is difficult to be precise on how well the year-to-date outturn tallies with the OBR's expectations. But with data now available for 11 of the 12 months of the current fiscal year, borrowing in 2023-2024 looks set to come in close to the OBR forecast of £114.1bn.

“Beyond this year, the fiscal outlook is clouded by the chance of a change of government after the next general election.

“The Labour Party recently confirmed that should they form the next government, they would stick to the current administration’s primary fiscal rule of setting policy to ensure debt is falling as a share of GDP in the fifth year of the forecast. With the OBR forecasting only a narrow margin of safety in meeting that target, pursuing it would imply little room for manoeuvre for any potential new government, at least in terms of borrowing more to fund investment or other fiscal priorities. Whoever wins the next election, an immediate radical shift in fiscal policy appears unlikely at this stage.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

20 March 2024 | EY ITEM Club comments:

Base effects drove a significant fall in inflation in February

  • February's decline in Consumer Price Index (CPI) inflation is likely to be the first of several significant falls over the next few months, as large base effects come into play. With energy bills set to decline by 12% in April, the EY ITEM Club thinks inflation could fall below the Bank of England’s 2% target next month, before declining further in the summer.
  • Most of the downward pressure on headline inflation is coming from a combination of base effects and falls in the more volatile categories. While services inflation is cooling, the measured pace at which it is declining means the Monetary Policy Committee (MPC) will probably want more time before it is comfortable cutting interest rates. 

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “CPI inflation slowed to 3.4% in February, down from 4% in January and the lowest rate since September 2021. This was a little below Bank of England and consensus expectations of 3.5%. February's fall was largely due to base effects, following large rises in food and services prices between January and February last year.

“Base effects will remain influential over the next couple of months and, along with a 12% fall in Ofgem's energy price cap, this should mean inflation falls to, or below, the Bank of England’s 2% target in April. Furthermore, although only a month of Ofgem’s new observation window has passed, lower wholesale gas prices point to another substantial fall in the energy price cap and household bills in July. So, there's a good chance that inflation declines well below 2% in the second half of the year.

“Still, most of the downward pressure on inflation this year will come from the more volatile categories. The MPC has made clear that it is more interested in what’s happening to services inflation, which it sees as a better guide to underlying pressures. January saw a modest downside surprise, largely because the annual change in the weights had magnified the downward pressure from the fall in air fares. This effect unwound in February, and the outturn of 6.1% year-on-year was in line with the MPC’s expectations. 

“Recently, several MPC members have said they want to see more evidence that inflation persistence is weakening before cutting rates. So, while February's inflation performance leaves us on track for policy to be loosened, it also fits with the idea that the MPC is likely to take a cautious approach. The EY ITEM Club expects the minutes of March's meeting – which will be published tomorrow – to reiterate that while the MPC expects to cut rates at some point this year, the first move is not yet imminent.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

13 March 2024 | EY ITEM Club comments:

GDP looks to be on the road to recovery

  • January's rise in UK GDP could mark the start of a sustained recovery. The EY ITEM Club thinks health output is likely to have recovered further in February, when fewer working days were lost to industrial action, while business survey data has also been much stronger of late.
  • Momentum should build through the rest of the year, as much lower inflation offers solid support to real household income growth. Still, the lagged effect of past interest rate rises and tighter fiscal policy present significant headwinds that are likely to mean the pickup in activity is steady rather than spectacular.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “GDP rose by 0.2% month-on-month in January, recovering most of the ground lost at the end of last year. Unusually volatile data for the distribution sector was a key part of the story, with retail sales having rebounded in January following December's decline. Rather surprisingly, health output rose in January despite six days of industrial action by junior doctors at the start of the month, with the Office for National Statistics (ONS) attributing the increase in health activity to strength in the market sector. The construction sector also saw a substantial rise in output in January, after three successive large month-on-month falls at the end of 2023. 

“The EY ITEM Club expects GDP to have risen further in February. There were fewer strikes by junior doctors, so output in the health sector should have continued to recover. Meanwhile, the S&P Global/CIPS survey reported that the composite Purchasing Managers’ Index (PMI) reached a nine-month high last month. Overall, the EY ITEM Club expects to see solid GDP growth in Q1 2024, largely reversing the fall in output seen in H2 2023.

“Looking further out, the EY ITEM Club expects the economy to see decent growth during 2024, with a marked fall in inflation offering strong support to real incomes. Still, the pace of the uptick is likely to be constrained by the lagged effect of past interest rate rises and tighter fiscal policy, with this year's 4p cut in the rate of National Insurance Contributions only offsetting part of the impact of frozen tax thresholds.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

12 March 2024 | EY ITEM Club comments:

Pay growth remained stubbornly high in early 2024

  • The downward momentum in UK pay growth slowed in January. The Monetary Policy Committee (MPC) wants clear evidence that pay pressures are abating when contemplating the timing and pace of rate cuts and today’s data is unlikely to have members changing their approach. But the EY ITEM Club believes there is a strong case for rate cuts to begin soon.
  • Having been reintroduced last month, the Labour Force Survey (LFS) continues to suggest that higher inactivity is keeping the jobs market tight. Still, the survey's issue with small samples means the EY ITEM Club remains wary when interpreting its data.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “This month's labour market release showed that headline (three-month average of the annual rate) average weekly earnings growth slowed only modestly in January, falling to 5.6%, from 5.8% in December. Meanwhile, private sector regular pay growth, the Bank of England's favoured measure, eased very slightly to 6.1%, from 6.2%. Persistent pay growth at the start of the year is consistent with the survey conducted recently by the Bank of England's regional agents. 

“LFS data showed that the jobs market remained relatively tight in the three months to January. Both employment and unemployment were down slightly on the previous three-month period, with inactivity rising again. Meanwhile, vacancies continued to fall back, although they remained above pre-pandemic levels. Though the LFS was re-introduced last month, the issue of small samples will not be fixed until the autumn. So, the EY ITEM Club is interpreting the LFS data with caution.

“The MPC has been clear that evidence on the strength of underlying inflation and pay pressures will be key to the timing and pace of rate cuts. Today's pay data was broadly consistent with the forecast by Bank of England staff published in last month's Monetary Policy Report, so it's unlikely to alter the views of MPC members. But wages are a lagging indicator and the EY ITEM Club thinks pay growth will continue to slow, as low inflation weighs on pay demands. In the EY ITEM Club’s view, there is a strong case for the MPC to cut rates soon, although the Committee’s recent cautious language suggests that move may have to wait until early summer.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

07 March 2024 | EY ITEM Club comments:

House prices recovery is looking well-established

  • Although a 0.4% month-on-month rise in Halifax’s measure of house prices in February was smaller than January’s, it was the fifth successive monthly increase. Aided by lower mortgage rates and an improving economic outlook, a recovery in property values now looks to be firmly established.
  • The EY ITEM Club expects prices to continue ticking up. Real wages are rising again, unemployment is low and quoted mortgage rates have fallen since the peaks last summer. The recovery in mortgage approvals suggests these factors are boosting activity in the housing market, while high inward migration offers another prop to demand.
  • Quoted mortgage rates are still much higher than in the past and appear to have levelled off in response to markets paring back expectations of the scale of Bank of England rate cuts. So, a house price boom is a long way off, but prices now look to be back on an upward trajectory.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “The premise of a continued house price recovery was reinforced by another rise in Halifax’s measure of house prices. Granted, February’s 0.4% month-on-month increase was down from 1.3% in January, but it was the fifth successive monthly rise and left prices only 0.6% below their all-time high in the summer of 2022, if down by more in inflation-adjusted terms. 

“February’s outturn, alongside an increase in Nationwide’s house price measure in the same month, bolsters the EY ITEM Club’s view that the correction in property values seen in late 2022 and part of last year has ended. An improving economic outlook has helped. Falling inflation and still-strong pay growth mean real wages are rising again, unemployment is very low, consumer sentiment has picked up and quoted mortgage rates are significantly lower than the peaks of summer 2023. 

“These factors contributed to mortgage approvals in January rising to a 15-month high, while surveys of buyer and seller activity have also picked up. Very high inward migration, but a continued under-supply of new houses, is also propping up property values. 

“Signs of resilience in the housing market carry some qualifications. Mortgage approvals in January were still a tenth below the 2022 average, reflecting the fact that while mortgage affordability has improved in recent months, it remains stretched in comparison to past norms. The average interest rate on new mortgages dipped in January. But it was still around 350bps higher than the lows of 2021. And there is already evidence that quoted mortgage rates are rising in response to markets paring back expectations of the scale of Bank of England rate cuts this year. This is likely to continue over the next few months. However, even allowing for these headwinds, the EY ITEM Club thinks that house prices are now back on an upward trajectory.” 

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

06 March 2024 | EY ITEM Club comments:

Budget’s tax cuts will ease fiscal pressure on economy

  • The fact that the tax cuts announced by the Chancellor today will be part-funded by tax rises elsewhere will limit the boost to the economy. Nonetheless, alongside lower inflation, falling energy bills and prospective cuts in interest rates, the Budget’s personal tax cuts offer another reason to believe the economy will gather momentum this year and next.
  • On a pre-Budget measures basis, the Office for Budget Responsibility (OBR) made little change to its estimate of headroom against the Chancellor’s fiscal rules. However, the Chancellor chose to use more of what was already limited room for manoeuvre to cut taxes in net terms. Most importantly, National Insurance rates will be reduced by 2p, raising households’ post-tax incomes by around £10bn annually. But this will be partly offset by several new taxes and other revenue raising measures.
  • A more upbeat economic forecast from the OBR made for a slightly better fiscal outlook in the short-term. GDP is now forecast to rise a bit faster this year and next than expected last autumn. This leaves the OBR noticeably more optimistic on growth than the Bank of England, and in the EY ITEM Club’s view justifiably so.
  • It remains the case that the squeeze on public spending baked in for the next parliament looks implausibly tight. That will be less so if measures announced today to improve the public sector’s poor productivity performance are successful. Technological advances, particularly Artificial Intelligence (AI), offer some hope here.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Today’s Budget delivered a widely-trailed cut in National Insurance Contributions (NICs). Building on the 2p cut announced last autumn, the Chancellor delivered a further 2p reduction, cutting NICs rates to 8% for employees and 6% for the self-employed from April. In isolation, this will boost households’ post-tax income by £10bn per year by 2028-2029. However, the Chancellor part-financed the reduction in personal taxes with targeted tax rises elsewhere. Notably, the tax regime for non-domiciles will be abolished and replaced with a less generous system and the windfall tax on oil and gas producers will be extended by a year. As a result, the Budget’s net fiscal loosening averages a modest £8bn, or around 0.3% of GDP, over the five years from 2024-2025.

“The OBR has become more optimistic about the economic outlook, largely reflecting support from lower energy prices and falls in market interest rates. GDP is now expected to rise by an above consensus 0.8% this year, close to the EY ITEM Club’s forecast of 0.9%, followed by 1.9% in 2025. This compares with 0.7% and 1.4% this year and next predicted by the OBR in the autumn.

“The tax cuts announced in the Budget contribute to that growth upgrade by raising household incomes and, via increasing returners to work, boosting labour supply. Combined with lower inflation, falling energy bills and likely cuts in interest rates in the next few months, prospects for the economy are brightening.

“But despite a better economic outlook, the OBR’s pre-Budget estimate of headroom against the government’s key fiscal target to reduce public debt as a share of GDP in five years’ time was little changed from last autumn. This mainly reflects the adverse effect of lower inflation on tax revenues. But the cuts in NICs and other ‘giveaways’ mean the Chancellor has chosen to use more of what was already a limited room for manoeuvre. 

“Still, the Budget’s net tax cut leaves the Chancellor with only a small margin against his debt goal. The predicted £9bn of headroom against the fiscal rules in 2028-29 is down from £13bn in the autumn and compares with an average of £26.1bn that Chancellors have set aside against their fiscal rules since 2010. 

“Such a modest margin suggests that today’s Budget may be the final fiscal event before the next general election. The Chancellor has been the beneficiary of favourable OBR forecast revisions twice in a row, but the fiscal arithmetic could easily go the other way next time. Notably, the fact that market interest rate expectations have been rising since the OBR locked down its forecast in late January would imply a higher projection for debt interest spending, and even less fiscal headroom, were the forecast to be produced today. 

“Whether what is an arbitrary fiscal target really matters is another question. More importantly, the tax burden is projected to rise to a post-war high over the next few years, despite today’s tax cuts, while public spending in the next parliament is on course to be squeezed to a significant extent. Measures announced today to improve the public sector’s poor productivity performance, initially focused on the NHS, could go some way to making those spending plans more feasible without damaging public services. Technological advances, particularly AI, offer some hope here.

“Adjusting the fiscal rules to allow higher public sector investment and ensuring that investment goes into measures that raise the economy’s growth potential could also help.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

06 March 2024 | EY ITEM Club comments:

Construction weakness continues to ease

  • February’s construction Purchasing Managers’ Index (PMI) of 49.7 came in ahead of expectations and was the highest for six months. Alongside better signs in February’s other activity surveys, construction’s performance adds to indications that the economy’s contraction in late 2023 will likely have proved short-lived.
  • Housebuilding saw a particularly marked turnaround in the latest S&P Global survey, suggesting that lower market interest rates and an improvement in the mood music around the housing market are making their presence felt. That said, cost pressures facing construction businesses picked up in February, another indication that some sources of inflation are proving sticky.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “February’s construction PMI signalled that previous weakness in the sector is fading. Although an index of 49.7 was still below the 50 ‘no-change’ mark separating the S&P Global survey’s measure of expansion from contraction, it was only marginally below, and the highest since last August. The latest survey’s forward-looking balances were also more positive. Total new work increased marginally in February, ending a six-month period of decline, and business optimism was the highest for over two years.

“The fact that housebuilding activity saw the biggest turnaround in February’s survey suggests that the decline in mortgage rates since last summer and a recovery in housing market activity are starting to make their presence felt. However, commercial activity slipped in comparison to January’s level.

“With the Bank of England likely to start cutting interest rates in the next few months, what has been one of the key headwinds facing the construction sector should ease further, loosening credit conditions and reducing debt costs and investment hurdle rates. 

“However, on a more downbeat note, despite falling energy prices, February’s survey showed cost pressures facing construction companies picking up - a move linked to strong wage pressures and rising transportation costs. The S&P survey’s measure of input cost inflation has also risen for services and manufacturing businesses in recent months. This offers another reason as to why the Bank of England’s language around the prospect of interest rate cuts is likely to remain cautious for the time being.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

05 March 2024 | EY ITEM Club comments:

Services growth in February is another sign that recession was short-lived

  • Although February’s services Purchasing Managers’ Index (PMI) slipped slightly, it signalled another month of growth in the economy’s dominant sector and reinforced the EY ITEM Club’s view that the late 2023 recession was short-lived. Rising real wages, falling energy bills and the prospect of cuts in taxes and interest rates should see momentum in services activity and the wider economy build through 2024. 
  • Evidence in the latest S&P Global survey of still-strong wage growth will probably inject more caution into the Monetary Policy Committee’s (MPC) attitude towards rate cuts. However, wages are a lagging indicator and prospective cuts in energy bills point to inflation falling below the Bank of England’s 2% target for much of this year. In the EY ITEM Club’s view, the case for the MPC to cut rates soon remains strong.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “A robust reading for the services PMI in February continued to contrast with relative weakness in the manufacturing index. The services PMI stood at 53.8, a slight decline from January’s eight-month high of 54.3 but still higher than at any time in the second half of 2023. With February’s manufacturing PMI stuck in contractionary, sub-50 territory, the composite PMI for last month came in at a weaker 53.0. Still, this was consistent, given past form, with quarterly GDP growth of around 0.3% in Q1 and reinforces the EY ITEM Club’s view that the recession in the second half of last year is likely over.

“Momentum in services activity and the wider economy should improve. Average wages are rising in real terms again, some form of personal tax cut looks likely in the Spring Budget and household energy bills will fall by 14% in April, which should boost discretionary spending. If the recent further fall in wholesale gas prices is maintained, bills should see another double-digit percentage cut in July, when Ofgem recalculates the Energy Price Cap. Alongside broader disinflationary forces, less expensive energy should bring inflation below the Bank of England’s 2% target in the spring and keep it at that level for much of this year, unlocking rate cuts by the Bank of England.

“True, the latest S&P Global survey pointed to cost pressures in the services sector proving stubborn, mainly as a result of still-strong pay growth. The survey’s balance for input costs rose to a five-month high, and with some of those cost pressures passed onto customers, selling prices inflation also picked up. But wages are a lagging indicator and the EY ITEM Club thinks the sustained slowdown in the official pay data during 2023 should continue as low inflation weighs on pay demands. In the EY ITEM Club’s view, the case for the Monetary Policy Committee to cut rates soon remains strong, although the MPC’s cautious language of late means that move may have to wait until early summer.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

07 Mar 2024 | Spring Budget 2024

Sarah Farrow, EY Partner, comments on non-dom tax changes announced in the Spring Budget 2024

“The abolition of the existing non-dom tax regime and plans to replace it with a residence-based test from April 2025, are moves to simplify the current remittance basis regime, which can be complex and difficult to navigate for taxpayers and did not attract capital to flow into the UK.

“Under the proposed new regime, non-residents who arrive in the UK, having not been UK resident in the previous ten years, will have a period of four years where their foreign income and gains are not taxable in the UK, even if they are brought to and spent here.

“After the initial four-year period, these individuals will pay UK tax on an arising, worldwide basis in the same way as any other UK resident.

“There are concerns that four years is a very short period of time in comparison to other countries with a similar regime, such as Italy, and may deter non-UK residents from coming to the UK in the first place.

“There will be transitional arrangements for existing UK residents who are currently claiming non-domicile status. This will include a 50% reduction in the foreign income subject to UK tax for two years for individuals who will lose the ability to use the remittance basis, and an ability to rebase assets to their 5 April 2019 value.

“There will also be an opportunity for these individuals to remit previously untaxed foreign income and gains during 2025-26 and 2026-27 at a much-reduced rate of 12%. The details of these transitional arrangements are yet to be shared, but they will be key in determining how many UK resident non-domicile individuals stay in the UK, and how many may leave given these changes.”

Nicholas Yassukovich, UK Financial Services Tax Partner at EY, adds:

“The non-domicile tax status has always been an important factor in attracting senior international talent to the UK – particularly in the banking and asset management sectors. The Chancellor’s decision to simplify and reform the non-domicile tax regime – rather than abolish it – is a sensible one. While the shortening of the time period to four years may make the UK less attractive when compared to more generous regimes such as those in Western Europe, the abolition of the remittance basis will be welcomed by some many foreign nationals who come to work in the City of London and currently have to keep earnings related to overseas business travel outside the UK.

"However, the wealth management and offshore banking service providers currently supporting the non-domicile community will undoubtedly be impacted negatively by this change, and will need to find new ways to maintain profitability by adding to their core offerings.”

Edited by Sarah Farrow

Partner, Ultra-High-Net-Worth, EY Private Client Services Limited

Has over 20 years’ experience specialising in international high-net-worth individuals. Lives with her husband and two teenage daughters. Enjoys exercising and going on long walks with her dog.

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

06 Mar 2024 | Spring Budget 2024

EY comments on changes to eligibility criteria for high net worth investors

Axe Ali, EMEIA Financial Services Private Equity & Venture Capital Leader at EY, comments on changes to the eligibility criterial for high net worth or sophisticated investors:

“The reversal of the previously proposed change to the eligibility criteria of a high net worth or sophisticated investors – while somewhat unexpected – is positive news for new and growing UK businesses.

“The proposals sparked significant debate when announced in January, when concerns were raised that many of the individuals who would fail to meet the higher threshold would have been from minority backgrounds and female. In addition to minimising diversity, this change would have also meant many angel networks and investment syndicates would have lost viable investors, and would result in a critical part of the ecosystem that supports growing and scaling UK companies shrinking.

“Today’s decision to revert to the previous criteria will be welcome news for the industry following months of consultations, and reflects the Government’s continued focus on boosting investment in new and innovative UK companies.” 

Edited by Axe Ali

EY EMEIA Private Equity and Value Creation Leader

Investor. Innovator. Passionate about financial services, FinTech, private equity and venture capital.

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

06 Mar 2024 | Spring Budget 2024

EY comments on full expensing on leased assets and manufacturing support

Mark Minihane, EY’s UK Advanced Manufacturing and Mobility Tax Leader, comments on support for the manufacturing sector announced in the Chancellor’s Spring Budget:

“Following consistent calls and lobbying from industry bodies, today’s promise of full expensing for leased assets will be welcomed by businesses which would otherwise be placing a more significant reliance on banks and other lenders. However, this only comes into force when fiscal conditions allow, which many across the industry will be hoping happens soon.

“A package of £270m of support for British manufacturing was another positive announcement. The aerospace and automotive sectors were the ‘winners’ with zero-carbon aircraft and Electric Vehicle (EV) technology benefitting from some of this new funding.

“However, significant longer-term certainty around the distribution of the £4.5bn support package announced in the Chancellor’s Autumn Statement for Advanced Manufacturing still appears absent. Additional detail on this would help businesses tackle complex challenges associated with forward planning – particularly those in pursuit of substantial and sustainable growth.”

Edited by James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

06 Mar 2024 | Spring Budget 2024

EY comments on proposed extension of full expensing to leased assets

Chris Sanger, EY Tax Policy Leader, comments on the proposed extension of full expensing to leased assets, announced in the Chancellor’s Spring Budget:

“The Chancellor’s commitment to legislating to extend full expensing to leased assets responds to calls from cash-strapped businesses that are otherwise excluded from the incentive. Full expensing was a prized policy when made permanent at the Autumn Statement, as it was viewed as way to incentivise business investment in the UK over the long term. This proposed change would extend the benefit to companies that want to make significant investments but which are reliant on banks and other lenders to do so.

“Whilst the Chancellor said that this would only apply “when fiscal conditions allow”, his decision to publish legislation on the extension represents a clear commitment. Many businesses may see this step as a large down-payment on this policy and will likely expect its inclusion in a near-future Budget.”

Edited by Chris Sanger

EY Global Government and Risk Tax Leader and EY EMEIA and UK&I (Tax Centre) Tax Policy Leader

Passionate about improving tax policy. Problem solver. Globetrotter

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

06 Mar 2024 | Spring Budget 2024

EY comments on proposed abolition of the Multiple Dwelling Relief

Russell Gardner, EY UK Real Estate, Hospitality and Construction Sector Leader, comments on the proposed abolition of the Multiple Dwelling Relief, announced in the Chancellor’s Spring Budget:

“The removal of the Multiple Dwelling Relief within the Stamp Duty Land Tax is likely to have far-ranging, and potentially unforeseen and unintended, consequences. One area of particular concern is that it could deter investment into purpose-built student accommodation. Universities are working hard to market themselves to international students, and purpose-built student accommodation is typically a key draw. Removing the relief could result in a tightening of the supply of purpose-build student accommodation, driving up the price of the available stock, which would, in turn, disproportionally impact less well-off UK students.

“While complete removal of the relief would address the alleged misuse of the Multiple Dwelling Relief, other options, such as excluding the Multiple Dwelling Relief for annexes, might better avoid these potential consequences.”

Edited by Russell Gardner

EY UK&I Real Estate, Hospitality and Construction Sector Leader

Head of Real Estate, Hospitality and Construction. More than 20 years' of experience advising on UK and European property transactions. Helping clients tackle challenges today for tomorrow's growth.

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

06 Mar 2024 | Spring Budget 2024

EY comments on measures to boost the UK film, TV and creative arts sector

Anna Fry, EY Partner, comments on measures to support the UK’s creative industries announced in the Chancellor’s Spring Budget:

“The 40% tax relief on business rates for film and TV studios will provide a boost for an industry which generated £125 billion in GVA for the UK economy in 2022. The business rate reduction will promote investment in new studio space and help unlock significant investment in the sector, enabling stalled developments to get back on track.

“The broadening of the audio-visual expenditure credit to include visual effects (VFX) at an enhanced rate for film and high-end TV is also a welcome development to increase the competitiveness of the UK for production. Previously the sector has struggled to attract the investment in VFX it needs to grow, with VFX often being applied overseas to otherwise UK produced content. However, today’s announcement will help to incentivise film makers to use home-grown talent and technology and encourage growth and investment in a vibrant sector. Additional tax credits for independent film makers will also help to stimulate the film making ecosystem as well as nurturing emerging talent.

“The Chancellor’s measures complement the government’s sector vision and package of incentives announced last year, which included funding for film and high-end TV and reform of the tax reliefs for creative industries which will help to grow the sector by a further £50bn. Taken as a whole, the UK offers a competitive package of benefits to film and TV makers looking to use the country for their next blockbuster.”

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

06 Mar 2024 | Spring Budget 2024

EY comments on cuts to National Insurance Contributions

Tom Evennett, EY UK&I Private Client Services Leader, comments on the cuts to National Insurance Contributions announced in the Chancellor’s Spring Budget:

“The reduction in the rate of employee National Insurance Contributions (NIC) from 12% down to 10% on income between the primary threshold and upper earnings limit which kicked-in from 6 January 2024 was doubled today with a further 2% cut by the Chancellor, effective from 6 April 2024.

“This takes the rate of employee NICs down to 8% in this range and is worth up to £754 for an individual employee earning in excess of £50,270. This results in total savings in NICs for individual employees in the 2024/5 UK tax year to just over £1,500 for the whole tax year where they earn more than the upper earnings limit.  

“The self-employed were also not forgotten in this move to reduce the overall tax burden on workers as the 2% cut was also made on Class 4 NICs. This moves the rate down from 8% to 6% and the £754 saving is equivalent for the self-employed where their profits are in excess of £50,270. This measure, together with the 1% cut announced in the Autumn Statement and the abolition of Class 2 NICs for the self-employed, should mean that the self-employed will benefit up to the tune of £1,323 for the 2024/25 tax year.

“Both these measures will put money back into the pockets of workers and alleviate some of the tax burden (the ‘fiscal drag’) that has impacted individuals due to the freezing of the income tax thresholds over the past few years.

“However, there was no cut to income tax rates, including the much trailed 2p cut in the basic rate of income tax, which means that individuals who do not pay national insurance (e.g. workers over state pension age and those with unearned rental and savings income) will not benefit from the measures announced today.”

Edited by Tom Evennett

EY UK&I Family Enterprise Leader; Partner, Private Client Services, Ernst & Young LLP

Advises UHNW individuals, families and entrepreneurs, and private offices and wealth structures in the UK and globally. Avid follower of Crystal Palace Football club.

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

06 Mar 2024 | Spring Budget 2024

EY comments on the increased VAT Registration Threshold

Sarah Delaney, Indirect Tax Knowledge and Markets Lead at EY, comments on the increased VAT Registration Threshold for UK established businesses from £85,000 to £90,000:

“Today’s rise in the UK VAT registration threshold to £90,000 is an above-inflation increase, but leaves the threshold well below the £107,000 level that it would have been if it had risen with inflation since it was frozen at £85,000 in 2017.

“This increase should provide a helping hand for smaller companies bumping up against the limit and mitigate the risk of some companies taking steps to stay below the threshold – for example by closing for a couple of months. Lifting the threshold gives these businesses more room to grow, but ultimately passes the problem to those businesses trading around £90,000. Longer-term the government may need to consider a solution to help avoid this cliff edge effect.”

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

06 Mar 2024 | Spring Budget 2024

EY comments on R&D Tax Credits

Faye Ruffles, EY UK&I Partner, comments:

"With HMRC publishing additional guidance and timings for the R&D tax credit scheme over the last month, there was little left for the Chancellor to reveal at the Spring Budget. On Monday, businesses learned that the merged scheme would come into effect for accounting periods beginning on or after 1 April 2024. Given the newly merged regime will not distinguish between large and small businesses, this will mark another reduction in the specific tax relief provided to SME R&D, with the exception of smaller companies deemed to be 'R&D intensive'. Smaller companies may have preferred more time to plan for the impact of the merger. However, other businesses will likely be happy that the Budget contained no further changes to a regime which is already in a state of flux."

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.

06 Mar 2024 | Spring Budget 2024

An Entrée Budget before the manifesto main course

Chris Sanger, EY UK Tax Policy Leader, comments on the Chancellor’s Spring Budget:

“The Chancellor’s Budget announcements included 14 tax cuts and 16 rises, but the two stars of the show – the National Insurance cut and the replacement of the Non-Domicile regime - had been heavily trailed in the days before. Whether these 30 measures meet the appetite of the electorate is yet to be seen - this Budget may come to be seen as a mere ‘entrée’ before a manifesto main course.

“Beyond National Insurance and the Non-Domicile regime, the Chancellor chose to cut tax sparingly, with two other big measures introduced: the fuel duty freeze which was fully expected, and the reform of Child Benefit onto a household basis. The remaining cuts were scattered broadly, including the just-above-inflation increase (ignoring the previous years of freezes) in the VAT threshold; the four percentage point cut in the rate of Capital Gains Tax on private dwellings (which apparently actually raises money for the Exchequer); additional relief for visual effects; and a brand new UK ISA.

“There was more on the tax rises, beyond the replacement of the non-domicile regime, with an extension of the Energy Profits Levy, abolition of both the Furnished Holiday Lets regime and Multiple Dwellings Relief, and the introduction of a new excise on vapes. When taken together with the increases in tobacco duty and parts of air passenger duty, the Budget had a feeling of ‘cleaning out the cupboard’.

“The Chancellor’s key measures will attract a lot of attention, but there were some notable gaps. On the so-called tourist tax (VAT on retail exports), the Government has merely welcomed further submissions following the OBR’s review. And on inheritance tax, the Chancellor was very quiet, having spent the cost of abolition on his National Insurance cuts instead.”

Edited by Chris Sanger

EY Global Government and Risk Tax Leader and EY EMEIA and UK&I (Tax Centre) Tax Policy Leader

Passionate about improving tax policy. Problem solver. Globetrotter

Edited by Rob Joyce

Manager, Media Relations, Ernst & Young LLP

Experienced communications and media relations professional. Dad of one and a reluctant Arsenal fan.