Economics bulletin 24 November

Where is the economy going?

Inflation is likely to remain higher for longer than was previously forecast. Inflation will return to the 2% target more than a year later than previously forecast in 2025. Interest rates are also expected to remain higher for longer.

Living standards next year are forecast to be 3.5% lower in 2024/5 than their pre-pandemic level and will only recover back to these levels in 2027/28, illustrating the pressure consumers have been put under by the combination of the pandemic and the cost-of-living crisis.

How will consumers fare?

The Autumn Statement has the potential to provide some welcome news for hard pressed consumers. The 2-percentage point reduction in National Insurance will benefit working people from January and a significant rise in the National Living Wage from £10.42 to £11.44 per hour will support those on the lowest incomes.

However, it is still unclear what the overall impact on consumers could be. Many are still feeling scarred by high food price inflation and relatively high interest rates. The Office for Budget responsibility has stated that taxes will rise “in each of the next 5 years to a post-war high of 38% of GDP”.

OFGEM has announced a 5% increase to the energy price cap from January 2024. This comes at a time when households will not benefit from the £400 support previously provided by the government.

Which policy announcements will impact businesses?

Growing the economy, boosting investment and improving productivity was central to the Chancellor’s announcement. The Chancellor announced 110 measures to support the economy.

Businesses will welcome “full expensing” (i.e., the ability to “write off” capex against Corporation Tax) being made permanent as well as the 12-month extension to business rates relief for retail, hospitality and leisure units.

The freezing of alcohol duty to August 2024 will be welcomed by hospitality businesses.

In a period of high interest rates and compressed margins, there is a question whether the growth package will be sufficient to incentivise investment to the levels required across the food and consumer goods industry.

Our Viewpoint

The Chancellor announced measures to support investment in selected strategically important industries listed as automobiles, aerospace, life sciences and net-zero. Food production, processing and distribution are not mentioned, despite their huge economic value.

While there are still challenges to economic growth, a handful of industries can make an impactful contribution. The food industry is one of them. Only when we recognise the whole food system, from farm to fork, can we appreciate how critical it is to a thriving UK, in an ever-challenging global landscape.

With a general election expected next year, businesses across the food system will need to work together and grasp the opportunity to ensure the economic value of the food system is recognised.

Download our infographic to understand the role the food system plays in a thriving UK.

For full analysis, watch our Economics team discuss the Autumn Statement and outline what this means for businesses and consumers.