In this week's briefing, we discuss a surge of optimism among UK finance bosses, which may hint at a potential economic revival.
Simultaneously, we look at the UK Government’s implementation of tax cuts worth over £20 billion, meaning individuals will now pay less personal taxes than in any other G7 country.
Our discussion also extends beyond our borders, delving into China's anticipated economic growth as its property market stabilises, and more.
UK Tax Update
UK Tax Cuts Amount To Over £20 Billion
- As the Government sticks to its economic plan, over 29 Million workers have received the largest-ever cut to national insurance.
- Over 2 million self-employed individuals will benefit as Class 4 National Insurance Contributions (NICs) are reduced from 9% to 6%.
- Additionally, the abolition of Class 2 NICs simplifies the tax system and saves the average self-employed person over £650 per year.
- This is part of a longer-term ambition to end the unfair double tax on work by abolishing employee and self-employed NICs altogether.
- According to the Government, these tax cuts are possible thanks to inflation being brought down from 11.1% to 3.4%.
- Prime Minister Rishi Sunak said: “Hard work is one of my core values, and the progress we have made on the economy means we can reward work with a tax cut worth £900 for the average earner”.
UK Economy
Optimism Amongst CFOs Increases For The Third Consecutive Quarter
- According to a Deloitte survey, optimism among CFOs at the UK’s largest companies has increased for the third consecutive quarter as brighter economic prospects for the UK economy translate into heightened corporate confidence.
- With interest rates likely to be cut soon (potentially within the next few months) thanks to falling inflation, CFOs are more confident about their business prospects than usual.
- 64 CFOs participated in the latest quarterly survey – including finance bosses from eight FTSE 100 companies and 23 FTSE 250 firms – with a net 17% more positive about their businesses' financial prospects than they were three months ago.
- Ian Steward, Chief Economist at Deloitte, said: “Optimism among the UK’s largest businesses is running at well above average levels, suggesting that the worst of the economic downturn is behind us, with current sentiment at levels that preceded periods of good growth in 2010, 2014 and 2021. For the first time in three years, CFOs expect margins to increase over the next 12 months.”
- The survey also indicated that inflationary fears are receding, as finance chiefs now expect inflation to be 2.9% in a year’s time, down from the 3.5% expected last quarter.
Global Economy
Chinese Economy Set To Increase 5.3%
- Economic growth is inevitable as China’s property sectors rebound and demand for their products increases.
- According to the ASEAN+3 Macroeconomic Research Office, China could see GDP growth of up to 5.3% this year, in line with the official target of 5%.
- The Singapore-based group has stated that a gradual property recovery in China amidst ongoing policy support ‘would boost real estate investment, generating spillovers for the rest of the region’.
- Meanwhile, economists in a Bloomberg survey see China’s GDP expanding 4.6% in 2024.
- AMRO forecasts a 4.5% expansion in growth across the ASEAN nations plus China, Japan and South Korea this year, up from 4.3% in 2023.
- But this outlook isn’t guaranteed, with China expanding at a slower pace than expected being a major risk.
US Inflation Rises, Slashing Hopes Of Interest Rate Cuts
- The US’s Consumer Price Index, a key inflation gauge, rose a higher-than-expected 3.5% over the 12 months to March.
- Inflation was up from 3.2% in February and the increase was driven by higher costs for fuel, housing, dining out and clothing.
- In response, analysts have warned that the stall in slowing price rises will force the US Central Bank to keep interest rates higher for longer.
- The Federal Reserve’s key interest rate is now in the range of 5.25% to 5.5%, the highest level in over two decades.
- Shares on Wall Street also closed lower on Wednesday following the inflation announcement, as investors had been betting that interest rates could be cut soon.
- Core inflation, which many economists consider a better indicator of future trends because it doesn’t include volatile food and energy prices, stood at 3.8% – unmoved from February.
A Final Note
The huge £20 billion in UK tax cuts, complemented by a surge in CFO confidence, signal a promising era of economic revitalisation and hint at a robust future for the nation’s economy.
These positive signs present a clear opportunity for investment into UK businesses and in turn highlight the tax-efficient Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) as particularly attractive considerations for investors keen to benefit from a rebounding private sector.
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.