Economic Outlook: Stemmed the inflation tide but not yet turned the economic corner

02 Oct 2023 In-depth

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The latest economic data shows that we may have stemmed the tide of inflation but the economy as a whole has not yet turned the corner. There is therefore, a need for charity trustees and leaders to continue to be focused on their immediate challenges but also with an eye to planning for the future.

The Office for National Statistics (ONS) estimated that monthly real gross domestic product (GDP) fell by 0.5% for July 2023, following growth of 0.5% in June 2023. There were factors which affected different parts of the economy. Those that may be of interest to charities include industrial action affecting the healthcare sector and, to a lesser extent, education, as well as negative contribution from the retail trade, offset by positive contribution from the arts, entertainment and recreation, which grew by 6.6% in July 2023; the largest growth since May 2021. However, a longer-term economic analysis suggests that the overall trend for UK activity has remained broadly flat over the past year.

Downward trend

The ONS also reported that inflation has continued to follow a downward trend in the year to August 2023, with consumer prices index (CPI) inflation falling to 6.7%, despite many expecting a temporary upward rise. It is clear from the data that there is a broad-based easing of inflation pressures, although there are signs that energy inflation is starting to pick up again. Overall, this should help to ease the squeeze on household living standards, with nominal wage growth now exceeding headline inflation.

While this does not impact all charities, those which participate in defined benefit pension schemes have seen this topic come on the agenda. PwC’s Low Resilience Index, which tracks the position of the UK’s defined benefit pension schemes based on a low-risk income-generating investment strategy, continues to show a healthy surplus of £360bn in August 2023. This should mean that pension schemes are unlikely to call on their sponsor for further funding in the short term.

PwC’s Buyout Index also shows funding levels have reached a record surplus of £230bn in August 2023. The improved funding levels, driven by the increase in long-term gilt rates, mean that full or partial transfers to the insurance market are increasingly attractive. This is playing out in the charity sector, with a number of charities exploring their options in relation to this.

Daniel Chan is a director at PwC 


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