Having listened to a number of economists over recent months, one consistent point is the ongoing unpredictability in reading the trade market. 2022 was dominated by the increase in energy costs due to the Russia-Ukraine conflict, supply-chain issues and the inability to fill job vacancies due to the labour shortage.
Late 2022 into 2023 has then been focused on the cost of living, and the inflationary pressures being felt by businesses. Whilst the Bank of England has continued to attempt to curb inflation through persistent interest rate rises, this appears not to have yet dampened inflation to the government’s target which is by the end of the calendar year – hence making it really difficult to know how 2023 will progress. Recession has been talked about for many months, but suggestions now appear that the UK will avoid a technical recession, which is welcome news for us all.
Further good news is that in the manufacturing sector whilst coping with these pressures, some subsectors have seen growth in the year to date, with strong order books and maintaining or rising prices to cope with inflation fuelled cost increases. Whether that growth has outstripped the cost increases will be interesting to understand in the coming months, and to see if this growth continues through to other subsectors.
To support the UK economy, in the Spring the government attempted to deliver a “budget for growth”, to support continued capital investment, by following up on the cessation of the Super-Deduction allowance and bringing in Full Expensing on new and unused plant and machinery for 3 years until April 2026. Jeremy Hunt also increased childcare support for working parents and scrapped pension lifetime allowance in an attempt to bring more people back into the workforce. This will take time to work through, as some of the reliefs are not immediate, but it’s clear that manufacturing businesses are still wrestling with labour and skills shortages, and these will continue to be a barrier for growth, therefore any changes to bring more individuals back on to the job market is necessary.
Brexit challenges still seem to remain, as the EU continues to be a major partner for both imports and exports to UK manufacturers. The government attempts to develop new trade agreements elsewhere, such as Australia and New Zealand – however, it feels many manufacturing businesses are finding it difficult to predict how the remainder of 2023 will work through, which is no surprise given the highly uncertain environment around them. It would however be very welcoming to see manufacturing beginning to build up, as the UK seeks to move back into sustained growth.
Included within our current edition is our Corporate Tax Director, Ann Minson, outlining the changes following the Spring Budget in regards to R&D claims and the future of this relief, plus David Scrivener, our Corporate Finance Partner, in regards to “Building Up to Succession”.
I hope you enjoy reading this edition and wish you all a successful year in 2023 and enjoyable summer.
