Now that the dust has settled on last month’s Spring Budget, ICAEW has published a more detailed analysis on the implications for the public finances.
ICAEW’s Fiscal Insight on the Spring Budget 2024 provides an analysis of the key numbers, risks to the Office for Budget Responsibility forecast, tax measures, forecast revisions since the 2023 Autumn Statement, the fiscal position in the 2024/25 Budget year, borrowing over the next five years, the calculation of underlying debt, the £1.2trn that HM Treasury needs to raise from debt investors, and our conclusions on what the numbers mean for the public finances.
Key points highlighted in the report include:
Headlines
Modest improvement in forecasts and small tax increases ‘pay for’ national insurance cut.
Headroom of £9bn against the Chancellor’s primary fiscal rule is tiny compared with risks.
End of low-cost borrowing is hampering investment in infrastructure and public services.
Weak economy, high debt, demographic challenges, underperforming public services.
No long-term fiscal strategy.
Key numbers
Tax and other receipts of £1,139bn in 2024/25, equivalent to £1,375 per person per month.
Public spending of £1,226bn in 2024/25, equivalent to £1,480 per person per month.
Deficit projected to fall by a quarter to £87bn in 2024/25 and gradually to £39bn in 2028/29.
Headline debt expected to reach £2.8trn by March 2025 and £3.0trn by March 2029.
Underlying debt/GDP forecast to increase from 88.8% to 93.2% and then fall to 92.9%.
Conclusions
Difficult choices on spending deferred until after the general election.
Post-election tax increases likely, irrespective of who wins the general election.
A badly designed fiscal rule driving poor decisions and unrealistic spending forecasts.
Predicted reduction in the deficit to below 2% of GDP by 2027/28 is unlikely to occur.
Further pre-election tax cuts could affect credibility with debt markets.
Alison Ring OBE FCA, ICAEW Director for Public Sector and Taxation, is quoted in the Fiscal Insight as follows:
“The principal story of the Spring Budget has been how the Chancellor was able to find room for tax cuts while still meeting his fiscal targets to ‘bring down debt and the deficit’.
“This is a frustrating narrative as it misses the bigger picture of public finances that are on an unsustainable path, with little sign of a long-term fiscal strategy to address demographic change, growing balance sheet liabilities, underperforming public services, rising debt interest, or resilience against future economic shocks.
“Debt is high and projected to be even higher in five years’ time than it is today. ‘Headroom’ is tiny in context of trillions of pounds of tax receipts and public spending over the next five years and forecasts that don’t reflect government practice in freezing fuel duties nor likely spending increases from the now postponed Spending Review.
“And we have a fiscal target that discourages essential infrastructure investment while at the same time never needing to be achieved as it is rolled forward each year.
“All of our fiscal eggs are now in a basket labelled ‘hope’ [for economic growth].”
Fiscal Insight
Read the full Fiscal Insight report, which provides detailed analysis on the Spring Budget’s implications for the public finances.
My chart for ICAEW this week looks at how retail sales have increased by 19.5% over the past five years, comprising a 1.4% fall in volumes and a 21.2% increase in prices.
The latest statistics from the Office for National Statistics (ONS) up to February 2024 highlight how retail sales in Great Britain (England, Wales and Scotland) have been on a rollercoaster ride over the past five years as the pandemic, then the cost-of-living crisis, battered the economy.
As our chart of the week illustrates, changes in retail sales can be split between volumes and prices, with growth in retail sales of 19.5% over the five years to February 2024 consisting of a 1.4% fall in volumes and a 21.2% increase in prices.
Our chart also shows how retail sales have increased by year, starting with a 0.8% increase in retail sales in the year to February 2020 (from a 0.2% fall in volumes and a 1% increase in prices) before the first pandemic lockdown the following month. That first year of the pandemic to February 2021 resulted in a 4.4% decline in sales (a 3.3% fall in volumes and a 1.1% reduction in prices) as we cut back on spending, followed by a massive 15.4% jump in retail sales in the year to February 2022 (7% from higher volumes and 7.8% from higher prices) as the nation emerged and started to spend heavily.
The cost-of-living crisis was behind a 5% increase in retail sales in the year to February 2023, as although prices rose 9.6% as inflation accelerated, households cut back on what they bought in response to drive a 4.2% fall in retail volumes.
Retail sales were up by a more modest 2.3% in the year to February 2024, comprising a 0.3% fall in volumes and a 2.6% increase in prices as inflation moderated.
Evening out the ups and downs gives an average increase in retail sales of 3.6% a year over the last five years, comprising an average fall of 0.3% a year in volumes and an average increase of 3.9% in prices.
This is not as positive a picture for retail business as the numbers might imply. Although it appears that retailers are selling slightly less overall at much higher prices, our chart doesn’t reflect the substantial increases many have seen in their input costs over the same period.
For more ICAEW analysis on the economy, click here.
Only a small improvement in the year-to-date deficit of £107bn reported in the penultimate monthly public finance release for 2023/24 over the same period a year ago.
The monthly public sector finances for February 2024 released by the Office for National Statistics (ONS) on Thursday 21 March 2024 reported a provisional deficit for the month of £8bn, while at the same time revising the year-to-date deficit up by £2bn. This increased the cumulative deficit for the first 11 months of the financial year to £107bn, £5bn less than in the same period last year.
The deficit for the first 11 months of 2023/24 is slightly ahead of the £114bn full-year estimate made by the Office for Budget Responsibility (OBR) in its latest fiscal forecasts that accompanied the Spring Budget 2024 earlier this month.
Alison Ring OBE FCA, ICAEW Director of Public Sector and Taxation, said: “The numbers for February saw the public finances return to deficit following January’s self-assessment-driven surplus, bringing the cumulative deficit to £107bn for the first 11 months of the financial year. This is a £5bn improvement on the same period last year, with lower cost of living support payments and lower interest on index-linked debt as inflation has fallen, but it is still higher than is comfortable.
“Chancellor Jeremy Hunt’s aim to cut the deficit by a quarter to £87bn in the coming financial year will be challenging to achieve given much-higher-than-inflation rises to the state pension, benefits and the minimum wage, while pressure to find extra money for defence, local government and public services is only likely to grow as the general election approaches.”
Month of February 2024
The fiscal deficit of £8bn for the month was £3bn lower than in February 2023, but slightly higher than some predictions.
Taxes and other receipts amounted to £95bn, up 8% compared with the same month last year, while total managed expenditure was 4% higher at £103bn.
Public sector net debt as of 31 January 2024 was £2,659bn or 97.1% of GDP, £12bn higher than at the start of the month and £120bn higher than at the start of the financial year.
Eleven months to February 2024
The provisional shortfall in taxes and other receipts compared with total managed expenditure for the first 11 months of the 2023/24 financial year to February 2024 was £107bn, £5bn less than the amount reported for the first 11 months of 2022/23.
This reflected a year-to-date shortfall between tax and other receipts of £995bn and total managed expenditure of £1,102bn, each up 6% compared with the corresponding numbers for April 2022 to February 2023.
Inflation benefited tax receipts for the first 11 months compared with the same period in the previous year, with income tax up 11% to £249bn and VAT up 6% to £181bn. Corporation tax receipts were up 18% to £93bn, partly reflecting the increase in the corporation tax rate from 19% to 25% from 1 April 2023, while national insurance receipts were up by just 1% to £163bn as the abolition of the short-lived health and social care levy in 2022/23 offset the effect of wage increases in the current financial year, in addition to the cut in employee national insurance implemented in January. Council tax receipts were up 6% to £39bn, but stamp duty on properties was down by 24% to £12bn, while the total for all other taxes was up by just 1% at £153bn as economic activity slowed. Non-tax receipts were up 10% to £105bn, primarily driven by higher investment income and higher interest charged on student loans.
Total managed expenditure of £1,102bn in the 11 months to February 2024 can be analysed between current expenditure excluding interest of £935bn, interest of £114bn and net investment of £53bn, compared with £1,049bn in the same period in the previous year, comprising £893bn, £125bn and £31bn respectively.
The increase of £42bn or 5% in current expenditure excluding interest was driven by a £33bn increase in pension and other welfare benefits (including cost-of-living payments), £19bn in higher central government pay, and £11bn in additional central government procurement spending, less £18bn in lower subsidy payments (principally relating to energy support schemes) and £3bn in net other changes.
The fall in interest costs for the 11 months of £11bn or 9% to £114bn comprises a £23bn or 46% reduction to £27bn for interest accrued on index-linked debt as the rate of inflation fell, partially offset by a £12bn or 16% increase to £87bn from higher interest rates on variable-rate debt and new and refinanced fixed-rate debt.
The £22bn increase in net investment spending to £53bn in the first 11 months of the current financial year is distorted by a one-off credit of £10bn arising from changes in interest rates and repayment terms of student loans recorded in December 2022. Adjusting for that credit, the increase of £12bn reflects high construction cost inflation amongst other factors that saw a £16bn or 17% increase in gross investment to £112bn, less a £4bn or 7% increase in depreciation to £59bn.
Screenshot
The cumulative deficit of £107bn for the first 11 months of the financial year is £5bn below the OBR’s November 2023 forecast of £112bn for the same period but slightly higher than it should be to be consistent with the updated £114bn full year estimate for 2023/24 in its March 2024 forecast.
The OBR’s March 2024 forecast predicts an £87bn deficit in the next financial year commencing in April (2024/25) a reduction of approximately a quarter compared with the current financial year.
Balance sheet metrics
Public sector net debt was £2,659bn at the end of February 2024, equivalent to 97.1% of GDP.
This is an increase since the start of the financial year of £120bn, comprising borrowing to fund the deficit for the 11 months of £107bn plus an additional £13bn of borrowing to fund lending to students, businesses and others, net of loan repayments and working capital movements.
Public sector net debt is £844bn more than the £1,815bn reported for 31 March 2020 at the start of the pandemic and £2,124bn more than the £535bn number as of 31 March 2007 before the financial crisis, reflecting the huge sums borrowed over the last couple of decades.
Public sector net worth, the new balance sheet metric launched by the ONS this year, was -£668bn on 29 February 2024, comprising £1,596bn in non-financial assets and £1,062bn in non-liquid financial assets minus £2,659bn of net debt (£319bn liquid financial assets – £2,977bn public sector gross debt) and other liabilities of £667bn. This is a £65bn deterioration from the -£613bn reported for 31 March 2023.
Revisions
Caution is needed with respect to the numbers published by the ONS, which are expected to be repeatedly revised as estimates are refined and gaps in the underlying data are filled.
The latest release saw the ONS revise the reported deficit for the 10 months to January 2024 up by £2bn as estimates of tax receipts and expenditure were updated for better data, as well as revise the calculation of the public sector net debt to GDP ratio at 31 January 2024 from 96.5% to 96.8% as GDP estimates were updated in line with the latest OBR forecasts.
The ONS also revised its estimate for the deficit for the financial year to March 2023 (2022/23), down by £1bn to £128bn.
My chart for ICAEW this week takes a look at how average earnings have risen over the last decade and how they compare with the headline rate of inflation.
According to the Office for National Statistics (ONS), average weekly earnings including bonuses on a seasonally adjusted basis increased by 5.5% between January 2023 and January 2024 to £672 (equivalent to £2,912 per month). This is 1.5 percentage points higher than the rate of consumer price inflation (CPI) over the same 12-month period of 4.0%.
While this might seem positive for the theoretical ‘average’ worker, this follows a 6.2% increase in the preceding year to January 2023, 3.9 percentage points lower than the corresponding 10.1% increase in consumer prices.
Our chart this week takes these numbers back a decade, with CPI of 0.3%, 0.3%, 1.8%, 3.0%, 1.8%, 1.8%, 0.7%, 5.5%, 10.1% and 4.0% respectively in the years from January 2015 through to January 2024. Average earnings increased by 1.4%, 2.8%, 1.7%, 2.6%, 3.8%, 3.1%, 4.3%, 5.1%, 6.2% and 5.5% respectively over the same period, giving rise to net differences of +1.1%, +2.5%, -0.1%, -0.4%, +2.0%, +1.3%, +1.3%, +3.6%, -0.4%, -3.9% and +1.5%.
Overall, wages have increased faster than inflation over the last decade, up 43.2% compared with a 32.8% increase in the CPI Index, equivalent to average rises of 3.7% a year and 2.9% a year respectively – or a net 0.8 percentage point a year improvement in average wages over CPI.
Private sector wages have risen faster at 45.7% over ten years (3.8% a year on average), while public sector wages have gone up by 33.7% (2.9% a year on average), only marginally ahead of CPI (by 0.07% a year). Of course, averages are just that and individual and household experiences will differ significantly.
This comparison would not be approved of by the statistical authorities, who prefer the consumer prices including housing (CPIH) measure of inflation to headline CPI. However, CPIH was up 31.7% over the past decade to January 2024 (or 2.8% a year on average), so while the numbers might have been slightly different in individual years if we had used CPIH in the chart, the increase in average wages over 10 years is only slightly better – by 1.1% in total or 0.1% a year on average.
Assuming inflation falls to below 2% later this year as predicted, the picture for the coming year is likely to show a significant positive variance for earnings, especially given the 9.8% increase in the minimum wage scheduled for April. This should have the effect of pushing up average earnings, unless something very surprising happens to wages further up the income scale.
For more ICAEW analysis on the economy, click here.
Our chart this week takes a look at the effect of the Spring Budget 2024 on the public finances.
This week’s chart summarises the changes announced in the Spring Budget 2024, analysing the changes in the budgeted fiscal deficit for 2024/25 and the forecast fiscal deficit for 2028/29 since the forecasts that accompanied the Autumn Statement 2023 last November.
As the chart illustrates, the budgeted deficit for 2024/25 of £85bn anticipated in November has been revised up to £87bn, comprising forecast revisions reducing the deficit of £10bn, followed by tax cuts of £14bn increasing the deficit, offset by tax rises of close to zero and other changes of £2bn reducing the deficit.
The chart also shows the changes to the final year of the forecast period, with the forecast of deficit £35bn at the time of the Autumn Statement 2023 reduced by £1bn from forecast revisions, increased by £13bn to fund tax cuts, reduced by £6bn from tax rises and £2bn from other changes to reach a new forecast for the deficit in 2028/29 of £39bn.
The good news for the Chancellor was the improvement in the public finances in the earlier years of the forecast, with interest rate expectations coming down from last year. This resulted in an improvement in the forecasts of £16bn in 2024/25 and £14bn in 2028/29, offset by the effect of lower inflation expectations on tax and other receipts of £2bn and £13bn respectively to result in net forecast revisions of £10bn and £1bn respectively. The lower inflation assumption has a bigger impact over time as there is a compounding effect on tax and other receipts.
This allowed the Chancellor to announce a two-percentage point cut in national insurance pushing up the deficit by £10bn in 2024/25 and £11bn in 2028/29, together with freezes in fuel and alcohol duties, changes in the high-income child benefit charge, an increase in the VAT threshold from £85,000 to £90,000, and a four-percentage point cut in capital gains tax on property sales from 28% to 24%. The latter change is expected to increase tax receipts by a few hundred million pounds a year as it is expected to encourage more property sales, with higher volumes offsetting lower tax on each sale. Overall, these other tax cuts push up the deficit by £4bn in 2024/25 and £2bn in 2028/29.
The forecast revisions weren’t enough to allow the Chancellor to cover the cost of cutting taxes, and so he also announced some tax rises. These include the introduction of a duty on vaping and an increase in tobacco duty, an extension of the energy profits levy to March 2029, and changes in the tax treatment of ‘non-doms’. These have a relatively small effect in 2024/25 but build up to a reduction in the deficit around £6bn a year by 2028/29.
Other changes of £2bn in 2024/25 comprised £1bn in other policy measures and £1bn in indirect benefits to the economy from the Chancellor’s announcements in 2024/25, while the £2bn in 2028/29 reflected £1bn from improvements in tax collection, £1bn in other measures, and £2bn from indirect benefits to the economy, offset by £1bn from interest on increased borrowing, and £1bn to be invested in public sector productivity.
In summary, these are relatively tiny changes in the outlook for the public finance in the context of £1.2trn of public spending each year and public sector net debt that is still on track to exceed £3.0trn by the end of the forecast period in March 2029.
Even relatively small changes in economic assumptions, in spending plans, or in tax policies could have a significant impact on the fiscal forecasts, especially those for 2028/29.
For more information about the Spring Budget 2024 and ICAEW’s letters to the Chancellor and HM Treasury, click here.
Two quarters of shallow negative GDP growth may be just enough for the UK to be in a mere ‘technical’ recession, but seven successive quarters of negative GDP growth per capita present a more worrying picture.
The Office for National Statistics (ONS) released its latest statistics on quarterly GDP on 15 February 2024, reporting that GDP in the fourth quarter of 2023 (October to December) had fallen by 0.3% compared with the previous quarter, which in turn was 0.1% below the quarter before that. This was sufficient for the UK to meet one of widely accepted definitions of a recession: two successive quarters of economic contraction.
Many economists have chosen to describe this as a ‘technical’ recession given how shallow the fall in growth has been over the past two quarters, very different from the scale of contraction seen in ‘proper’ recessions such as that experienced during the financial crisis (when GDP fell in the order of 6% over four successive quarters). The ‘technical’ label also emphasises how relatively small subsequent revisions to the quarterly statistics could easily lift the UK out of recession again.
Perhaps more worrying for all of us living in the UK are how changes in GDP per capita have been negative over the past seven quarters, as illustrated by our chart this week. GDP per person can often be more important to individuals than the overall change in GDP given how living standards are, by definition, experienced on a per capita basis.
According to the official chained volume measure of GDP per head, economic activity per capita grew by 0.2% in the first quarter of 2022 (over the previous quarter) but has declined since then: by -0.2%, -0.2% and -0.0% respectively in the second, third and fourth quarters of 2022, and then -0.1%, -0.2%, -0.4% and -0.6% in the first, second, third and fourth quarters of 2023.
Overall, this is equivalent to a reduction of 1.5% in GDP per head between the fourth quarter of 2021 and the fourth quarter of 2023, although one additional note of caution is that the per capita numbers are based on population projections that are even more susceptible to revision than estimates of the size of the economy. Despite that, these numbers are not a sign of an economy doing well.
The per capita numbers put the reported GDP growth rates for the same eight quarters of +0.5%, +0.1%, -0.1%, +0.1%, +0.2%, +0.0%, -0.1%, and -0.3% respectively (equivalent to cumulative GDP growth of +0.4% between 2021 Q4 and 2023 Q4), into perspective, highlighting just how weak the performance of the UK economy has been over the past two years.
Just as the recession is being described as ‘technical’, there are good arguments for describing positive growth in GDP as also ‘technical’ when per capita growth is negative at the same time, reflecting how much stronger economic growth needs to be for living standards to improve.
The chart shows how the 30 countries tracked by the IMF fit between emerging market and developing economies, most of which are growing faster than the global averages, and advanced economies, which tend to grow less quickly.
The biggest drivers of the global forecast are the US, China and the EU, with both the US and China expected by the IMF to grow less strongly on average over the next two years than in 2023. This contrasts with an improvement over 2023 (which involved a shrinking economy in Germany) by the advanced national economies in the EU over the next two years – apart from Spain, which is expected to fall back from a strong recovery in 2023.
Growth in emerging and developing countries is expected to average 4.1% over the two years, led by India (now the world’s fifth largest national economy after the US, China, Germany and Japan), followed by the Philippines, Indonesia, Kazakhstan growing faster than China, followed by Malaysia, Saudi Arabia, Egypt, Iran, Thailand and Türkiye.
Nigeria, Poland and Pakistan are expected to grow slightly less than world economic output, followed by Mexico.
Russia, Brazil and South Africa are expected to grow less strongly, while Argentina is expected to grow the least, with a forecast contraction in 2024 expected to be followed by a strong recovery in 2025.
The strongest-growing of the advanced economies in the IMF analysis continues to be South Korea, followed by the US, Canada, Spain, Australia, France, the UK, Germany, the Netherlands and Italy, with Japan expected to have the lowest average growth. Overall, the advanced economies are expected to grow by an average of 1.6% over the next two years.
For the UK, forecast average growth of 1.0% over the next two years is expected to be faster than the 0.5% estimated for 2023, but at 0.6% in 2024 and 1.6% in 2025 we may not feel that much better off in the current year.
Of course, forecasts are forecasts, which means they are almost certainly wrong. However, they do provide some insight into the state of the world economy and how it appears to be recovering the pandemic.
Not shown in the chart are the estimate for 2023 and the breakdown in 2024 and 2025, so for those who are interested, the forecast percentage growth numbers are as follows:
The Office for National Statistics has updated its national population projections, lifting its expectations for 2025 by one million to just under 70 million people living in the UK and for 2050 by four million to 78 million.
My chart for ICAEW this week takes the latest principal population projections for the UK published by the Office for National Statistics (ONS) on 30 January 2024 and illustrates how the number of people in the UK has increased since 1975 and is projected to increase to 2075.
According to the ONS, there were 56m people living in the UK in June 1975 and our chart shows how this increased by 2m from births exceeding deaths (18m births – 16m deaths) and by 1m from net inward migration to reach 59m in June 2000, an average annual population growth rate of 0.2%.
The first quarter of the current century is expected to see the population increase to just under 70m by the middle of 2025, from a combination of 3m births less deaths (18m births – 15m deaths) and net inward migration of 8m, an average of just over 300,000 per year. This is equivalent to an average annual population growth rate of 0.7%.
From there, the population is projected to increase by approximately 8m to 78m in 2050, an average annual growth rate of 0.4%. This is driven by an assumption that immigration will continue to exceed emigration in the long-term by 315,000 a year, contributing 8m to the increase, while projected deaths are expected to marginally exceed births (18m deaths – 18m births) over the same period. The latter is also affected by the assumed level of immigration, with the ONS estimating that if net migration was zero then the population would fall by 3m over the 25 years to 2050 (18m deaths – 15m births).
The chart concludes with the projection for the following quarter-century from 2050 to 2075, with deaths exceeding births by 3m (21m deaths – 18m births) to partially offset an 8m projected increase from net inward migration to reach 83m in 2075, an average annual population growth of 0.3%.
These numbers are higher than the previous projection published by the ONS in January 2023 by 1m in 2025, 4m in 2050 and 8m in 2075, partly as a consequence of updating the baseline numbers to reflect the 2021 Census, but mainly because of higher assumptions for net inward migration. The ONS doubled the expected number of net inward migrants over the three years to June 2025 from approximately 300,000 per year to around 600,000 per year, and increased its long-term assumption from 245,000 net inward migrants per year to 315,000.
The challenge for policymakers is in balancing the needs of the economy and the public finances for more workers in order to pay for the pensions and health care costs of a rapidly growing number of pensioners, and fee-paying international students to subsidise the domestic university system, with political pressures to control immigration. Perhaps unsurprisingly this had led to a degree of unpredictability in immigration policy.
The challenge for the ONS is trying to reflect in its projections a highly unpredictable immigration policy, which in this case has resulted in it increasing its assumptions for net inward migration just as the government introduces a series of new restrictions that should significantly reduce the incoming flow of migrants.
The irony is that the ONS might have been better off just leaving its previous projections in place – but then that’s life in the forecasting game.
My chart for ICAEW this week illustrates how core inflation has only dropped from 6.3% in December 2022 to 5.1% in December 2023, even as the headline rate has come down from 10.5% to 4.0%.
On 17 January 2023, the Office for National Statistics (ONS) published its latest consumer price inflation (CPI) statistics for the 12 months to December 2023, reporting that headline inflation has fallen to an annual rate of 4.0% compared with 10.5% a year earlier – a more than halving of the annual rate of price growth.
This contrasts with CPI excluding energy, food, alcohol and tobacco (typically described as core inflation), which was 6.3% and 5.1% in the 12 months to December 2022 and 2023 respectively.
The left-hand side of my chart this week illustrates how core inflation in the 12 months to December 2022 of 6.3% contributed just under 5.0% to the weighted average total inflation rate of 10.5%, with food prices up 16.8%, alcohol and tobacco up 3.7%, and energy prices up 52.8% contributing a further 1.8%, 0.2% and 3.5% respectively.
The right-hand side shows the 12 months to December 2023, where core inflation of 5.1%, food price inflation of 8.0%, alcohol and tobacco inflation of 12.9%, and a fall in energy prices of 17.3% contributed approximately 4.0%, 0.9%, 0.5% and -1.4% respectively to the weighted average total rate of consumer price inflation of 4.0%
The relative weightings may explain why many people feel that inflation is still running faster than the headline rate. Food prices, up 8.0% in the past 12 months, have increased twice as fast as CPI of 4.0%, while alcohol (up 9.6%) and tobacco (up 16.0%) have gone up by even more. These may have been offset by energy prices coming down by 17.3% over the past 12 months, but this may not be perceived as that beneficial given how energy is still significantly more expensive than it was before the cost-of-living crisis started.
For policymakers, the bigger concern will be the stickiness in core inflation, which remains stubbornly higher than the Bank of England’s target for overall CPI of 2.0%. While the expectation is that both core and headline rates will come down further during the course of 2024, the Bank is likely to remain cautious about declaring victory in the fight against inflation despite worries about the effects of high interest rates on the struggling economy.
My chart for ICAEW this week illustrates how the number of flights to and from UK airports has not fully recovered since the pandemic.
Our chart this week looks at how the number of flights departing and arriving from UK airports (including internal flights) has changed over the past five years.
According to numbers published by the Office for National Statistics (ONS) – based on data from EUROCONTROL – there were approximately 2,137,000 flights in 2019, 835,000 in 2020, 823,000 in 2021, 1,714,000 in 2022 and 1,931,000 in 2023.
This was equivalent to daily averages of 5,870, 2,282, 2,254, 4,695 and 5,290 in 2019, 2020, 2021, 2022 and 2023 respectively.
Despite reports that consumer demand for air travel has recovered to (or potentially even exceeded) pre-pandemic levels, the number of flights in 2023 was only 90% of that seen in 2019. This is believed to reflect changing travel patterns among business travellers, where video conferencing, corporate carbon reduction targets and cost-saving initiatives are all thought to have contributed to a significant reduction in business trips compared with pre-pandemic times.
For the airline industry, the loss of businesses paying higher prices for flexible bookings has been a key challenge that has caused airlines to focus on improving passenger load factors (ie, seat utilisation), promoting premium tickets to leisure travellers and, in some cases, rebalancing towards the budget carrier market.
With the number of flights in the second half of 2023 around 9% more than in 2022, the industry will be hoping for further growth in demand during 2024.
