The UK Economic Outlook in Q2
Date: Mon 8th April 2024 | Author: Natalie Ridgwell
The clocks have changed, and the weather is warming up (slowly), so what is the outlook for the coming months as we move into Q2?
Assessing the outlook, consumer confidence is a key, subjective indicator of the future. It is a barometer of people's perceptions, and the long-standing GFK Consumer Confidence Survey, published on March 22nd, provides a useful summary.
It seems that consumer confidence stalled at minus -21 in March, following the two-point dip in February. However, an improved Personal Finance measure (next 12 months) at +2 is encouraging because it’s the first positive and the highest score since December 2021. However, after clear improvements in consumer confidence seen in most months since January 2023, the position is somewhat static.
It could be a temporary pause helped by the reduction in interest rates, or perhaps a forthcoming UK General Election has placed things on hold for now.
The UK Economy
Inflation
The most recent Office for National Statistics (ONS) data revealed that inflation in the UK rose by 3.4% in the year to February 2024. It was the lowest rate since September 2021. However, more recently, research by the British Retail Consortium (BRC) trade body and the market research firm NielsenIQ reported that inflation in shop prices in the UK has eased to the lowest level for more than two years after retailers cut prices on Easter purchases, clothing and electrical goods amid a slowdown in spending by consumers. Their data revealed that show prices rose at an annual rate of 1.3% in March, down from a rate of 2.5% in February – the slowest pace since December 2021
Interest rates
The Bank of England's target for inflation is 2%, based on the ONS data. Until recently, Bank governor Andrew Bailey said it was too soon to cut interest rates, which stand at 5.25% currently. However, in an interview with the BBC towards the end of March, Bailey said, "We are on the way" to interest rate cuts, adding that rate cuts could come before inflation hits its 2% target. Such news would be welcomed by those with mortgages and send a welcome positive picture for the economy.
GDP Forecast
Gross Domestic Product (GDP) is commonly used by governments to assess economic health. In its GDP outlook published in March, KPMG noted the ‘UK economy emerging from stagnation’. They said the UK economy had staged an early recovery from a technical recession in the second half of 2023, with real GDP growth expected to be 0.3% in 2024 and to accelerate to 0.9% in 2025.
Their forecast expects improving incomes to boost consumer spending, while investment should also benefit from easing credit conditions.
The UK Car Market
March and its new car plate is a peak sales period for new cars, and happily, the UK new car market clocked up its 20th consecutive month of growth in March, with a 10.4% rise in registrations. In fact, it was the best March performance since 2019.
However, the growth relied on fleet buyers, with registrations by private buyers falling by -7.7%.
Petrol car sales led the way with a 55.7% market share, followed by battery electric vehicle (BEV), where volumes were at their highest ever recorded levels, but market share fell by one percentage point to 15.2%; hybrid electric vehicles (HEVs) achieved 14.0% of the market and plug-in hybrids, 7.7%. Bringing up the final placing were diesel cars, which achieved a share of just 7.3%
Consumer demand has been encouraging in the used car market, including for used electric cars. This demand has seen prices stabilising after last year’s falls.
It is worth reflecting on the Zero Emission Vehicle Mandate, which requires that 22% of new passenger car sales sold this year must be zero-emission in 2024. In essence, a BEV. With just 15.2% market share achieved by BEVs in March, some manufacturers are already offering discounts and incentives on their BEV models. More of this seems likely in the coming months.
Like any year, 2024 will have challenges to close, but increasing consumer confidence and car retailer agility are likely to be a good combination. When it comes to agility, all of us in the supply chain need to embrace this dealer strength, and indeed, across AutoProtect Group, it is an ethos we continue to build into our model. Recent events have shown that F&I is changing, and the role of value-added products is evolving.
