Bulletin: economic outlook, higher growth, falling income

Economic outlook

The Chancellor, Rachel Reeves, in a speech to the Labour Party conference  stated that “the road ahead is steeper and harder than we expected”. However, she provided some positive outlook by stating that “there will be no return to austerity.” She repeated that the budget on 30 October will:

• Be a budget for economic growth

• Be a budget for investment in new industries, new technologies and new infrastructure

• Not increase rates of income tax, national insurance or VAT

• Cap corporation tax at its current level for this parliament

The Chancellor also announced that the government will publish next month plans for a “new industrial strategy for Britain”.

IGD opinion

The Chancellor has been subject to criticism in the first months of her tenure, with some business interests accusing her of excessive pessimism. The GFK consumer confidence measure has shown a steep drop in consumer confidence in the latest month, although IGD’s own Shopper Confidence Index, focused on the grocery sector, has been more stable so far.

More recently, there has been a noticeable attempt to present a more balanced message, with more focus on economic growth and development.

The Chancellor has, however, continued to emphasise that there is no plan in the forthcoming budget to increase four major taxes, which account for the bulk of government income.

It is therefore not clear how gaps in government finances will be filled.

One way may be via “fiscal drag” – for example, holding thresholds for income tax in order to increase tax receipts without changing tax rates.

Another alternative would be by increasing debt which might require changing the government’s fiscal rules (see story below). The fiscal rules are essentially voluntary, created by the previous government. There is no obligation to follow them. However, lenders may take note of any change and if their perception of risk goes up, then they will require higher returns on lending to the government.

Higher growth

The Organisation for Economic Co-operation and Development (OECD) has reported  that the UK economy is now predicted to grow by 1.1% in 2024. It had previously predicted a growth rate of 0.4%. Growth of 1.2% is predicted for 2025.

The OECD urged the government to rewrite its “short-termist” fiscal rules for higher public investment that would drive growth.

IGD opinion

The upward revision of the OECD growth forecast for the UK is encouraging, but even +1.1% is not especially impressive.

Over the 20 years preceding Covid, UK real GDP growth averaged +1.8%, even with the severe recession of 2008-09 included in the calculation.

It should also be noted that the UK population is expected to grow by 1.0% in 2024 and 0.9% in 2025 (source: ONS, principal projection).

So, even if OECD forecasts prove accurate, per-capita growth will be very weak.

Income drops

New data from the ONS shows  that for the fiscal year ending 2023, median household disposable income was down 2.5% on the previous year, at £34,500.

Median disposable income for the richest quintile was down 4.9% to £68,400.

However, median disposable income for the poorest quintile was up 2.3% to £16,400 – mainly due to government support measures.

With the poor getting richer and the rich getting poorer, income disparities declined over the year.

Skills and training

The Prime Minister has commented on skills and training at the Labour Party conference. He  stated that “I have never thought we should be relaxed about some sectors importing labour when there are millions of young people, ambitious and highly talented, who are desperate to work and contribute to their community.”

He promised:

• To get the skills system right

• Give businesses more flexibility to “adapt real training needs”

• To introduce new foundation apprenticeships

• Rebalance funding in training system back to young people

IGD opinion

IGD has been reporting on labour shortages and skills gaps impacting the resilience of the food system. As the largest private sector employer, the food system can play a key role in solving workforce challenges.

Businesses can get involved in our free employability programmes. These provide young people with the opportunity to develop their skills for work and gain insight into careers in the food and consumer goods industry.

IGD’s free learning programmes support those already in industry to develop workplace skills throughout their careers.

Get involved in the Mmmake Your Mark campaign on LinkedIn. Mmmake Your Mark unites the UK’s food and drink industry to celebrate the diverse and exciting roles our sector has to offer.

Share your story to be part of the conversation!

Organic import changes

Defra has extended the date by which checks on imports of organic goods from the EU, EEA and Switzerland from 2025 to 2027. It has also extended the date for marketing standards import certifications for products including fresh fruit and vegetables.