The UK's new wave of progress
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Here we look at the leading indicators in the world of economics.
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The UK’S new wave of progress
The UK economy is beginning to show signs of renewed momentum after nearly two years of stagnation. With newfound political stability, we see the UK benefiting from increased investor appetite, rising business investment, stabilising inflation, and subsequently, lower interest rates.
In the first half of 2024, the UK economy outperformed both the US and the Euro Area. UK GDP grew by +0.6% q/q in Q2 2024, following +0.7% growth in the previous quarter, outpacing its G7 peers. The Lloyds Business Barometer reached an eight-year high in August, holding steady at +50%, well above the long-term average of +29%, indicating strong business confidence. Reflecting this mood of optimism, sterling appreciated to $1.32 against the dollar in late August, its highest level since March 2022. The latest economic data suggests that the UK’s strong performance is likely to continue into the second half of the year, and further indicates that the country may be regaining its status as a more stable and dynamic market.
A busy Autumn of reforms
Next month’s budget, the first from the new Labour government, will see Chancellor Rachel Reeves present the UK government’s fiscal strategy. Significant changes to the tax system are anticipated as part of efforts to address a £22 billion deficit in public finances.
Among the potential reforms are adjustments to inheritance tax, capital gains, and the taxation of private equity carried interest. Labour has also announced plans to abolish the current tax regime for non-UK domiciled individuals (non-doms), replacing it with a new residence-based system effective from April 2025.
Separately, a major pensions review is aiming, amongst other things, at increasing pension investment into UK assets. Although the above impact of tax reforms on UK commercial real estate remains uncertain, even a small increase in pension investment in the UK could lead to more capital flowing into UK companies and, potentially, real estate.
Election 2024: Politics & Uncertainty
In the US, the 2024 general presidential election is heating up, with betting odds showing a nearly even split—a 51% chance of a Republican majority versus a 50% chance for the Democrats. In Europe, Germany’s far-right party has secured its first major electoral victory since World War II, while France faces the prospect of a hung parliament.
The Economic Policy Uncertainty Index, which tracks media coverage of policy-driven economic volatility, recorded a +10% m/m increase in Europe in July, marking its highest level since December 2022. This surge underscores ongoing political instability across the region, contrasting with a relatively stable political environment in the UK.
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