Warning signs of an economic slowdown are continuing to mount, as the pound sunk to its lowest level in six months yesterday (25 September), falling to US$1.22.
The Guardian reported that KMPG forecasted a slower growth rate of 0.4% this year, and 0.3% next year, down from 4.1% in 2023.
This follows the Bank of England’s (BoE) decision to halt interest rate rises last Thursday (21 September), sticking at 5.25% after 14 consecutive rises.
Not all bad news
The decision to halt base rate hikes came on the heels of favourable inflation data, with a slight fall from 6.8% to 6.7% recorded between August and September.
Trevor Williams, co-founder of FXGuard and visiting professor at Derby University, took this as a sign of a slightly more optimistic view, in light of rising consumer confidence.
“It’s bad but not as bad as it was. Clearly this news is negative for consumer spending.
“However, inflation is dropping and consumer confidence is up.”
The Consumer Confidence Index was at its highest level since January 2022.
John Stepek, a leading business journalist, wrote of the recent data: “Although the collective mood may be understandably unsettled, the real world numbers are basically fine.”
Further signs that the economy is succumbing to monetary tightening can be found in recent employment figures.
A formerly-resilient labour market has begun to show signs of stress; the Office for National Statistics (ONS) found that job vacancies fell 6% between Q2 and Q3 and were down over 20% on the previous year.
Unemployment also rose to 4.3% in July, up 0.5% percentage points on the previous three-month period, with 89,000 more people out of work compared to pre-pandemic figures.
Employment has remained high in the face of rate rises, and these recent figures have been attributed to the BoE decision to hold off on any further increases in the base rate.
A key indicator of the UK private sector’s health, the S&P Purchasing Manager’s Index (PMI) for services, fell to a 32-month low of 46.8. Any figure under 50 represents a contraction.
Financial services were feeling the strain, as the FT reported that the ‘Big Four’ accountancy firms Deloitte, EY, KMPG and PwC have all announced layoffs.
Ahead of redundancies Deloitte explained to staff that “slowing growth and economic uncertainty” are responsible.
A weakening pound could be good news for exporters, making it cheaper for international businesses to purchase their good and services.
Exports have had a mixed summer, with UK exports to the EU up £0.5bn, compared to decreasing exports to the rest of the world.
The ONS found the reduction was largely the result of falling fuel, machinery and transport equipment, although an increase in chemicals and machinery sent to the US limited the damage.
Although falling currency is usually a harbinger of cost-of-living woes, the outlook is still more favourable than last year.
Fuel had been a point of concern in the inflation data, with petrol rising 5.3p per litre between July and August, yet Williams highlights the price is lower than last year:
“A drop in currency won’t feed through overnight, and in the meantime fuel prices are still lower than they were this time last year.
“Ultimately, pressure on prices is easing with inflation falling.”