As George Osbourne’s spending review is unveiled and the financial year comes to a close, the team at Boost Capital have done our own business review for 2015. Using the rather lengthy PWC quarterly review and our own personal experience, we have created a handy (and much condensed) article exploring and explaining the changes and fluctuations of 2015.
- Recovery: Economic recovery slowed a little at the beginning of 2015. Growth was stimulated mainly by Britain’s traditionally strong services sector, whilst manufacturing and services both shrank, with the latter experiencing their biggest decline since 2012. Despite these decreases, the British economy is still 6% larger than before the financial crisis, whilst neither the manufacturing nor the construction sectors have experienced a return to their levels pre-crisis. Suggesting that continued economic recovery is relying far more on the services sector it will be interesting to note the continued effect of this on the employment market.
- Inflation: Inflation has remained consistently low this year, remaining around the 0.0% mark. In fact, April saw a significant dip in inflation when prices fell for the first time in fifty years. According to the Office for National Statistics this was due to a marginal increase in the price of clothes as well as a dip on oil prices. As the economy transitions into 2016, recipients will see a freeze on benefits apart from the state pension which is protected and will increase by at least 2.5%.
- Average Earnings: Significantly impacted by the economic downturn, average earnings finally saw an uptake this year after a worryingly stagnant period. According to the Office for National Statistics between May and July average earnings increased by 2.9% compared to the figures of 2014. The Institute for Fiscal Studies have indicated that the average household incomes have finally returned to pre-recession levels after the slowest recovery of any recession in history. The average family with two children is now earning £31,000 which is higher than the level of 2007-08.
- Consumer spending: Consumer spending has seen a dramatic increase in 2015, experiencing a six year high in May when personal spending rose to 0.9%. This is in stark comparison to 2014 when consumer savings were worryingly high. According to a study carried out by Barclaycard in the summer of 2015, spending on leisure and travel saw healthy growth, particularly Spain, USA and Italy were all popular destinations whom benefited from the security concerns around Greece. Whilst restaurants and pubs benefited from a healthy increase – 14.8% and 12.1% respectively. And this Christmas is to set to see promising figures as wage growth, higher employment and low inflation have all acted as significant spending incentives. The extremely welcome dip in oil prices has also provided further incentive for customers to redistribute their money towards non-essential items.
- Predictions for 2016: The economy has certainly strengthened this year. Whilst it got off to a faltering start, consumer savings have decreased as prices have dropped. Whilst none of the statistics can compare to the highs of the pre-crisis, the British economy seems to have emerged from the lows.
As we enter into the New Year, PWC predicts that the UK economy should grow by 2.4%. Of particular interest is the decrease in consumer spending on food and clothes due to the fierce price competition between outlets and chains. The dramatic price drop has provided consumers with low prices all year round. Comparatively household spending on utilities is set to increase by 25% over the next five years, as prices don’t really match the competitiveness seen in the retail market.