Weekly Briefing: Bank Rate stays at 16-year high, tech SMEs continue to invest in young talent & IMF raises outlook for global economic growth
This week, we cover the news that the Bank of England (BoE) has once again chosen to keep the bank rate at 5.25%, the young talent surge being experienced by UK tech SMEs, the Government’s tightening crackdown on IHT payments, and more.
Bank Rate Stays The Same But BOE Opens Door To Cuts
- The BoE’s Monetary Policy Committee voted to keep the bank rate at its 16-year high of 5.25% last Wednesday.
- This decision was in line with City forecasts, and markets are expecting the BoE to maintain the 5.25% rate at its next meeting in mid-March too.
- Six members of the committee voted in favour of maintaining the current rate, whilst two members voted for an increase and one for a decrease.
- Andrew Bailey, BoE Governor, said: “We have had good news on inflation over the past few months. It has fallen a long way, from 10% a year ago to 4%. But we need to see more evidence that inflation is set to fall all the way to the 2% target, and stay there, before we can lower interest rates."
- Chancellor Jeremy Hunt said: “It's obviously very positive news for families with mortgages that interest rates appear to have peaked, but we should remember that inflation never falls in a straight line.”
The IMF States A "Soft Landing" For Global Economic Growth Is Now A Possibility
- In its World Economic Outlook Update, the International Monetary Fund (IMF) has projected global growth to 3.1% in 2024 and 3.2% in 2025, with the 2024 forecast 0.2% higher than that in the October 2023 World Economic Outlook.
- The increased outlook is due to greater-than-expected resilience in the US and several large emerging market and developing economies, as well as fiscal support in China.
- Global headline inflation is expected to fall to 5.8% in 2024, whilst the 2025 forecast has been revised down to 4.4%.
- IMF Chief Economist Pierre-Olivier Gourinchas said: “The global economy continues to display remarkable resilience, with inflation declining steadily and growth holding up. We are very far from a global recession scenario.”
UK Tech SMEs Continue To Invest In Young Talent Despite Tough Economic Landscape
- SMEs within the UK’s tech sector are continuing to invest in young talent, demonstrating optimism and resilience amidst a challenging economic climate.
- The Skill’s Horizon Barometer reported that 69% are investing in young talent through low-cost recruitment tactics.
- The report highlights a growing appetite for technical education among SMEs, with 80% observing benefits from such initiatives in other businesses.
- Technical education options – including staff training and direct recruitment – are viewed as economical means of upskilling and hiring by 55% of tech SMEs.
- Encouragingly, the report also indicates that the outlook for tech SMEs remains positive, as an impressive 95% plan to grow their revenue in 2024.
- Launched by the Skills for Life campaign under the Department for Education, the report coincides with National Apprenticeship Week and aims to address challenges, opportunities and solutions for SMEs.
Over 2,000 Families Being Investigated By HMRC Over IHT Shortfalls
- According to The Times, HMRC opened 2,029 investigations into potential Inheritance Tax (IHT) underpayments between April and November 2023.
- There were more than 3,100 investigations and £251 million recovered in the prior tax year.
- The Treasury is expected to raise £7.6 billion IHT in 2023/24, a £500 million increase on 2022/23.
- Sean McCann from NFU Mutual said: “HMRC has substantial investigation powers if it suspects Inheritance Tax has been underpaid through error, omission or by undervaluing assets. It will check other information sources to build up a picture of the deceased and their financial affairs – including bank statements or looking at income which may suggest the existence of undisclosed assets such as investments, property or significant foreign currency transactions.”
- It’s clear that IHT remains a significant obstacle for many families, and for investors, considering IHT-free investment vehicles such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) is as important as ever.
Private Equity Is Changing The Global Soccer Landscape
- In 2021, private equity group CVC Capital Partners made a deal to invest $2.1 billion in the Spanish soccer league – the first deal of its kind in Europe’s top soccer leagues.
- The agreement gives Luxembourg-based CVC a 8.25% stake in a new company that manages TV rights from the Spanish league.
- This week, the Spanish clubs benefiting from a share of the funds are meeting to showcase and discuss the projects being funded by the capital injection.
- Private equity and other investment funds have built a strong presence in global soccer in recent years, as investors seized the opportunity during the Covid pandemic when clubs became cash-strapped.
- According to Pitchbook, more than one-third of the teams in the top five European leagues currently have financial backing from private equity, venture capital or private debt firms.
- They have invested $5.4 billion in Spain, France, Italy, Germany and England, up from $71 million in 2018.
Nationwide Say Outlook For UK Housing Market Is "More Positive"
- Nationwide’s House Price Index found that the average house price increased by 0.7% in January to £257,656.
- This shows a further recovery in the annual rate of change, with prices down just 0.2% compared to one year ago.
- Robert Gardner, Nationwide’s Chief Economist, said: “While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive.”
- Meanwhile, Yopa’s Chief Executive Verona Frankish said that the BoE maintaining the base rate will help to “steady the market further, providing buyers with the confidence that they can proceed with their purchase without the goalposts of mortgage affordability moving during the process.”
A Final Note
There’s been a steady stream of promising news this week. Figures from January have been showing a positive start to 2024, with the news that the BoE is maintaining the bank rate and the IMF’s global economic growth outlook has improved further reinforcing this.
It’s also excellent to see that the UK’s tech SME sector is looking robust, as is the housing market, with demand and market activity slowly strengthening.
On the other hand, The Times’ report on an uptick in IHT-related investigations should serve as a reminder to investors to keep IHT tax mitigating measures at the forefront of their investment decisions.
At GCV, we remain committed to providing the latest insights into the investment and wider economic landscape in order to support investors in making well-informed decisions when choosing where to allocate their capital.
If you would like to find out more about a number of tax-efficient investment strategies available to UK investors, discover our range of downloadable resources here.