Economic outlook: continued caution

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There are green shoots in the overall economic picture, although the prevailing mood among charity trustees and leaders is generally one of continued caution when it comes to finances. Talk of charity closures, charity mergers due to financial difficulties or examples of financial warning signs in the charity sector has been stronger in recent months. The idea that a charity’s resources cannot be overcommitted is therefore very much to the fore.

The focus on income and costs is combined with charities also reviewing their assets and liabilities. The ability to be nimble and know what levers can be pulled – and in what timeframe – where needed can be especially useful. With a variable risk profile, there should be constant vigilance on the level of reserves and liquidity.

There was further growth in the level of economic activity, with the Office for National Statistics (ONS) reporting that the UK economy grew by 0.4% in March 2024. While we have moved past the UK’s short-lived recessionary episode, households in The United Kingdom It may not have seen a significant improvement in living standards over the past two years, with the UK economy only 0.9% bigger than it was in March 2022.

Slow growth

In the short term, we expect the trend of recovery in economic activity to continue. The Organization for Economic Co-operation and Development (OECD) expects UK economic activity to grow by 0.4% this year and 1% next year. However, OECD forecasts show that the UK is stuck in the “slow growth lane” compared to other major European economies.

Annual ONS average wage growth remained at 6.0% in the three months to March 2024, and easing inflationary pressures mean wages continue to rise in real terms. The increase in the National Living Wage from April 2024 adds further upward pressure on wage growth. This upward trend in wages in real terms is therefore likely to continue throughout 2024. At the same time, the latest labor market data also indicate that the labor market is cooling. The unemployment/vacancy ratio, a key indicator of labor market tightness, rose to 1.6, the highest level since mid-2021.

The Bank of England’s monetary policy committee voted to keep interest rates at 5.25% in May. The Bank of England has made it clear that interest rates will only be cut when there is confidence that inflation will return to and remain at the 2% target. However, the mood appears to be moving away from rate hikes and further in favor of rate cuts in the period ahead.

Daniel Chan is a director at PwC