Figures released by the Office of National Statistics last week show that the UK economy showed no growth in July 2024. This is the second month in a row as there was also no growth in June.
However, looking at the three months ending in July, Gross Domestic Product (GDP) – a measure used to assess the economy – has grown by 0.5% when compared to the quarter ended in April.
The figures suggest that the economy is facing a period of stagnation after the growth and optimism we saw earlier in the year.
What does this mean for your business?
Oftentimes the GDP figures simply confirm what you have already been seeing, but what could these indications about the wider economy imply for your business?
1. Cautious consumer spending: No recent growth in GDP could indicate that consumer confidence is wavering. This can lead to reduced spending, particularly on goods and services that are viewed as non-essential. Businesses in retail, hospitality and non-discretionary sectors may be particularly affected.
2. Cash flow pressures: Businesses often rely on steady growth to maintain their cashflow. If sales slow it can make it more challenging to manage cashflow, especially for businesses that have narrow profit margins.
3. Investment hesitation: The signs of stagnation may make businesses hesitant to invest in expansion, new hires or capital improvements. If you are a b2b business, you may find it tricky to get customers to commit to projects and need to consider what incentives you can offer to get a sale over the line.
4. Potential for government support: If stagnation continues, the government may introduce measures to try and stimulate the economy. These might include tax reliefs or grants. Whether or not these could be helpful will depend on the specific measure proposed.
5. Sector specific impact: The figures behind July’s headline GDP rate suggest that the services sector remains relatively consistent with a 0.1% growth for the month, whereas production output decreased by 0.8% and construction output dropped by 0.4%. It could be worth considering whether this provides any opportunities for your business. For instance, if you have suppliers who are noticing a drop in orders, now may be a good time to see if you can negotiate a more preferential rate.
6. Supply chain risks: At the same time, if reduced demand or fluctuating costs are affecting your suppliers then this can impact on the security of getting the supplies your business needs. Having good communication with your suppliers can be helpful so that you can pick up on early signs of potential issues or price increases. This will help you to prepare for changes or may signal a need for you to diversify with the suppliers you use.
7. Competition and market dynamics: If the market is slowing down and stagnating, competition can increase as businesses fight over a limited pool of consumer spending. Prices and margins can be driven down as a result and make it harder for businesses to stay profitable.
Overall, the lack of growth in GDP suggests that you will need to be cautious and strategic over the next few months. A focus on efficiency, customer retention, and maintaining your financial flexibility may be needed so that you can weather any potential downturns.
Up and down turns in the economy are an inevitable part of business life, but as experienced business advisers we know how to chart a path that can help your business continue to thrive and grow. Please feel free to contact us at any time to see what help and tools we can provide you with.
See: https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/july2024
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