New Year, New Economy? A business review of 2023 and what 2024 might bring
The UK narrowly avoided a recession in 2023 but economic growth has been negligible, with many businesses continuing to struggle. Unfortunately, the signs are that conditions will remain tough for businesses in 2024.
For businesses and investors looking to plan ahead, understanding the current situation and what we might realistically expect in the year to come is critical. In this article, we look at what happened to the UK economy in 2023, what we might see in 2024 and what businesses should think about to help them survive and thrive in these tough economic conditions.
Key facts and figures from 2023
- The UK economy continued to struggle, with 0.4% expected growth for 2023 as a whole, according to the British Chambers of Commerce (BCC)
- Inflation remained high with a 7% rise in the Consumer Price Index (CPI) in the 12 months to September 2023
- However, UK inflation is predicted to fall to 4.6% for Q4 of 2023
- Average earnings are expected to have grown 5.5% in 2023, helping to offset some of the impact of inflation and higher interest rates
- Interest rates for 2023 are expected to peak at 5.5%
Key facts and figures for 2024
- A growth rate of 3% is predicted for 2024 by the BBC, slightly down on 2023
- Inflation is expected to hit 4% for Q1 of 2024, falling to 3.6% for Q2
- Average earnings are predicted to grow 3.5% in 2024
- A small fall in interest rates to an average of 5.25% is anticipated in 2024
What businesses should think about in 2024
Given that we seem to be in for a slow recovery, businesses need to make sure they are strategising effectively. To put your business in the strongest position possible, key steps you can consider are:
Review and renegotiate contracts and agreements
Now is a time to be really hard-nosed about what value you are getting from your business relationships and how much they are costing you. Look closely at all of your contracts and agreements and consider whether what is being offered best matches your current needs.
When the time comes to renegotiate, do not be afraid to shop around and see whether you can find better value elsewhere. While it might seem easier to stay with your existing suppliers, getting the best bang for your buck is particularly essential when times are tough.
Restructure to make your business more profitable
The more profitable your business is, the more resilient it will be against economic challenges. Restructuring can be a very effective way of refocusing your business on those activities that are most profitable, while moving away from those that are less profitable. Selling off unprofitable assets can also generate cash that you can use to strengthen your business in other ways (see below).
Working with specialist restructuring experts can help you to find the most effective ways to reorganise your business, putting you on a stronger footing for the future.
Hold off on expenditure (where appropriate)
A natural reaction when times are tough is to hold off on any new expenditure. While this can be good sense, it is important to understand the impact of not spending.
Some types of expenditure, such as an office refurb, can likely be deferred until a later date, however, other costs, such as upgrading essential equipment, can help you to be more efficient and profitable. Any new expenditure should, therefore, be carefully weighed, with the risks and rewards fully considered, so you can be confident that you are investing wisely.
Reduce your debt
When interest rates were low, borrowing was relatively low risk for many businesses. However, with interest rates now much higher, business debt can quickly become a significant burden – indeed, not being able to keep up with loan repayments is a common reason behind many insolvencies.
Reducing your debt can, therefore, be one of the best moves to protect your business against economic uncertainty. This is where actions such as holding off on expenditure (see above) and selling off unprofitable assets can be decisive, with any money saved or generated going towards paying down debt.
Build cash reserves
Cash reserves can offer a buffer against any downturn in trade or unexpected additional costs, so preserving and building cash in the bank is well worth considering where possible.
Again, actions such as delaying expenditure and selling off assets can help to generate additional cash for your reserves.
Be responsive to what the market wants
Many businesses fail because they do not respond to changing economic conditions and how these drive consumer demand.
The failure of retail chain Wilko has been blamed, at least partly, on its failure to react appropriately to changing market conditions. Wilko’s high street presence meant the chain was often paying higher rents than rivals such as Homebase and B&M, that tend to operate in lower cost locations. It has also been suggested that the chain may have benefited from focusing more on lower price, higher turnover items to generate cashflow, rather than continuing to stock such a large range of higher price, lower turnover items, such as furniture.
When times are tough, understanding what consumers are willing to spend money on and how this impacts your business can allow you to take action to strengthen your operations and become more resilient.
Speak to us about your requirements
Whether you need support with setting up a business, navigating an acquisition, sale or merger, dealing with contracts and agreements, or any other business legal matters, our highly experienced Company and Commercial Law team are here to help.
To discuss how we can help with any commercial law issues, please get in touch and we will be happy to advise.
Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.
