The outlook for 2024
Writing this outlook for 2024 on the day that the BBC business page led with the headline, “UK economy falls unexpectedly in October as higher rates bite”, it may seem curious to some that I am cautiously optimistic for the year ahead.
Looking at the Gross Domestic Product (GDP) report published by the Office for National Statistics (ONS), the manufacturing and construction sectors were hit by worse-than-expected declines in growth. However, when we look at the vehicle industry, the SMMT reported that UK car manufacturing output was up 31.6% in October. Production for home and overseas markets were up 23.9% and 33.4%.
We must pay attention to this type of nuance in the economy. Indeed, October's monthly fall in GDP could come with a silver lining, with some city traders immediately forecasting a fall in UK interest rate cuts during 2024 designed to boost economic activity.
Looking back to outlooks for 2023, the UK economy has shown surprising resilience this year. While there are unquestionably ‘headwinds’ to be addressed and growth is unlikely to be ‘stellar’, I believe the theme of resilience could be repeated.
Reasons for cautious optimism
- Consumer confidence: GfK’s long-running Consumer Confidence Index increased six points to -24 in November. All five measures of its measures rose month on month in November. Encouragingly, the Major Price Index rose 10 points.
- Wage growth: Annual wage growth (excluding bonuses) was 7.3% from August to October 2023. This was among the highest annual growth rates since comparable records began in 2001.
- Inflation has fallen back to 4.6, with an expectation that it will be back to the target level of 2% by 2025.
- Interest rates: the Bank of England kept Bank Rate at 5.25% on December 15th, the third successive month with no rate rise. While there is no sign yet of a rate cut from the Bank, the greater likelihood that rates have peaked is a positive and one that saw the FTSE rise rapidly on the day.
- Looking ahead to next year, the overall market outlook for 2024 is marginally more positive than previously anticipated, up 1.0% to 1.970 million units (a 4.4% rise on the 2023 outlook).
- Sentiment among homeowners and buyers in the property market has improved, with 33% saying they think UK house prices will rise over the next year. This compares with just 20% who had the same prediction in the previous quarter. Additionally, recent house price indices have reported that UK house prices have been rising once more.
The counterpoint for this optimism is that the high cost of borrowing, relative to recent years is seeing more people struggling to service their debts. According to the Bank of England, residential mortgage arrears jumped to a six-year high between July and September.
To provide some context to this position, the value of loans in arrears equates to 1.14% of outstanding balances. While it is a long way from the 2009 peak of 3.64%, as people’s fixed-rate mortgage terms end, such people are likely to find themselves paying more for their mortgage.
2024 prudence and confidence building
Affordability is likely to remain a central theme for consumers, businesses, borrowers, and lenders. Caution, whether self-exercised, the result of prudence, or regulatory consumer duty, will play a prominent role in the vehicle sales sector next year.
The rise in inflation and interest rates in recent years has been a new, unexpected, and unwelcome reality for many people. It will take time to rebuild peoples’ confidence, but I expect this to happen over the year.
Chris Rowthorn, Motor Sales Operations Director
