Weekly Briefing: UK business activity grows, Zoopla suggests housing market rebound & global economy approaching 'new normal'
In this week’s briefing, we take a look at January’s positive UK business activity data, the latest House Price Index Report from Zoopla which suggests promising movement for the UK housing market, and more.
UK Business Activity Grows
- UK business activity reached a seven-month high in January, with the services sector – including everything from pubs and restaurants to financial firms and transport – leading the growth despite supply disruption in the Red Sea impacting manufacturers.
- The S&P Global/CIPS Flash UK Purchasing Managers’ Index (PMI) reported a 52.5 reading in January, up from 52.1 in December.
- Any reading above 50 indicates growth in the sector.
- Many firms have said they have witnessed stronger demand among customers recently, with some owing that to lower borrowing costs.
- Chief Business Economist at S&P Global Market Intelligence, Chris Williamson, said: “UK business activity growth accelerated for a third straight month in January, according to early PMI survey data, marking a promising start to the year. However, the surprising strength of growth in January, which has exceeded forecasts, may deter the Bank of England from cutting interest rates as soon as many are expecting, especially as supply disruptions in the Red Sea are reigniting inflation in the manufacturing sector.”
Leaders Suggest Global Economy is Approaching a 'New Normal' at Davos
- Speaking on a Bloomberg panel at the World Economic Forum in Davos, European Central Bank President Christine Lagarde said that consumption, trade and inflation began to normalise last year, but reiterated that “it is not normality that we are heading to” in 2024.
- In October 2022, Eurozone inflation reached 10.6% before beginning to drop off, coming in at 2.9% in December 2023.
- Discussing trade, Lagarde said: “It is beginning now to really pick-up, and in October, we had global trade numbers that for the first time in many months were up”.
- The World Trade Organisation expects trade to increase by 3.3% in 2024, according to a forecast released last October.
- Speaking on the same panel, Germany’s Minister of Finance, Christian Lindner, characterised the current economic situation as a “new normal”.
- Lindner said: “Looking to what will come over the next few years [...] I would say we are witnessing a new normal and 2023 marks this new normal”.
Make UK and Barclays Call for Increased Awareness of Investment Zones
- A report by Make UK and Barclays Corporate Banking has advocated for increased awareness of the UK’s Investment Zones among businesses, citing a lack of knowledge among small companies.
- The report supports the Chancellor's decision to extend the fiscal benefits of Investment Zones from five to 10 years, stating that it enhances the attractiveness of the scheme.
- According to the study, only two-thirds of businesses are aware of the perks of Investment Zones, with one in four uncertain about whether their manufacturing practices qualify.
- Stephen Phipson from Make UK said: “To ensure maximum benefit for the sector, Investment Zones need to form part of an overarching long-term industrial strategy which is enshrined in statute so that it is not vulnerable to change with the political cycles. Government needs to continue to work with industry to find the best ways of making the manufacturing heartlands of the UK so even more good quality, highly paid jobs can be created through our vibrant sector."
- Lee Collinson from Barclays Corporate Banking said: "Investment Zones have the potential to support growth in both economic output and employment across the manufacturing sector. This growth can only be enhanced by raising awareness and ensuring that manufacturers understand the key benefits.
- Increased awareness of UK Investment Zones could help support both UK SMEs and the VCs invested in them for years to come.
Zoopla's January UK House Price Index
- Zoopla’s latest House Price Index Report shows a rebound in housing demand, new sales and supply as we begin 2024.
- Sub-5% mortgage rates supported market activity in January, with buyer demand 12% higher than a year ago.
- Demand remains 13% below the five-year average, however this does include the unprecedented pandemic 'boom years' of 2021 and 2022.
- The House Price Index highlights that it has been a positive start to 2024 after a weak H2 2023, when many prospective buyers delayed moving decisions in the face of rising mortgage rates.
- The number of sales agreed in the first three weeks of January was up 13% on the same period last year.
- Improving market conditions is also supporting house prices, according to the report, with Zoopla recording annual price falls of -0.8% in December 2023, up from a -1.4% low in October 2023.
A Final Note
The beginning of 2024 has evidently brought with it some tentatively promising news, with business activity in the UK and the UK’s housing market showing clear signs of growth, whilst UK investment is clearly still at the forefront of the Government’s priorities.
It has also been interesting to hear of the conversations coming out of the World Economic Forum in Davos, from Chancellor Jeremy Hunt’s calls for further investment into the UK’s tech industry as reported last week, to European Central Bank President Christine Lagarde’s thoughts on the outlook for the global economy going forward.
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