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Reports reveal UK economy looking much brighter

Two surveys have been released that point to improving confidence in, and better prospects for, the UK economy.

Deloitte’s quarterly survey of CFOs found sentiment had improved significantly since the start of the year helped by lower energy prices, falling inflation and easing of concerns over Brexit.

Confidence rose sharply in the first quarter, to above its long-term average, and perceptions of uncertainty have fallen at the fastest rate since the survey began more than 12 years ago.

CFOs reported a marked easing of supply chain and recruitment problems while expectations for inflation in one year’s time have declined from 5.8% to 4.2%.

But despite the improved sentiment, CFOs maintain a defensive strategy stance.

Risk appetite is below normal levels and CFOs are heavily focussed on cost control and building up cash.

Ian Stewart, chief economist at Deloitte said: “The economic unpredictability that marked the beginning of 2023 has started to clear, with CFOs reporting the largest decline in perceptions of uncertainty to date.”

“Business confidence has rebounded, helped by a decrease in energy prices, an easing of Brexit concerns and an improving inflation backdrop.”

“Crucially, finance leaders report little change in credit conditions, suggesting that March’s events in the global banking system have not affected the pricing and availability of credit for UK corporates.”

Stewart said CFOs foresee artificial intelligence helping to drive UK productivity, an outcome that could provide a lasting boost to business growth.

But they are divided, however, on how AI will affect the number of jobs in the economy, highlighting the need to ensure the gains from new technologies are widely shared.

Meanwhile the UK will avoid a recession but growth this year will be subdued, the EY Item Club said.

Government cost of living payments and energy bill subsidies supported households psychologically and financially more than expected at the end of last year, the economic think tank said.

The forecasting group expects the gross domestic product (GDP) measure of output to rise by 0.2%. This reflects a significant upgrade from the 0.7% decline expected in its January forecast. Output is then expected to rise by 1.9% next year and 2.3% in 2025.

The economy is expected to flatline in the first half of the year and narrowly avoid meeting the recession criteria of two consecutive quarters of negative growth. In the second half of the year a return to growth is expected as inflation and household bills fall sharply.

Inflation will begin to decline quickly because prices this year are compared with already high prices last year, and household bills are set to drop from July once households benefit from the sharp decline in natural gas prices over winter, the EY Item Club said.


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