2023 was a tough year as rising prices, stagnant incomes, and flatlining growth raised fears of a recession. However, there is hope for the dawning of 2024, which is likely to be an all-important election year, with a pre-Christmas surprise drop in inflation. The UK had particularly stubborn inflation due to the worst of both sources of price shocks affecting rich countries. But as those pressures retreat, the inflation gap is narrowing. The majority of UK borrowers are on two- or five-year fixed rate deals, unlike other countries such as the US and some of Europe, where fixed-rate mortgage deals tend to typically run for 25 or 30 years.
Despite Covid and higher rates, the UK’s jobs market has been resilient so far, and the latest comparable unemployment rate shows the UK at 4.2%, in line with the G7 average. But there are concerns about skills shortages impacting hiring, and as interest rates continue to bite, employers are likely to curb hiring further. However, to count as unemployed, people have to be available for work and seeking a job, or they count as inactive. The UK is one of the few rich countries in which there are more inactive people than prior to the pandemic.
Millions of workers will benefit from a New Year National Insurance cut, but they’ve also seen tax bills via their pay packets rise as the thresholds at which higher rates of taxes on incomes become applicable fail to rise with inflation. The UK’s tax burden, the proportion of the nation’s income, GDP, paid to the tax man, is still set to reach a post-war record. Our tax burden was lower than the EU average, although above that in the US on the latest comparable numbers. The taxman in France already receives 46 cents for every euro generated in the economy there.
Going into 2024, there are some areas to feel cheerful about, while other areas will mean some households continue to struggle. The economy is one of the most crucial election battlegrounds, and there’ll be plenty to keep politicians busy as they draft manifesto pledges and debate on doorsteps. Everyone wants to turbo-boost prosperity, and the question for politicians and policymakers is how to do so
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