Running a business is always a moving target and recent years have shown just how volatile the market can be for owners trying to keep up with a fast changing world. With global events, economic policy and consumer and worker demands changing fast, 2024 promises a fresh set of challenges to navigate.
As in previous years, the months ahead present an ongoing landscape of economic uncertainty, both globally and domestically, that could impact your bottom line. Here we delve into six key issues that might affect your business and explore some potential strategies to navigate them.
1. Costs and Tax
The recent Spring Statement 2024 offered a glimmer of hope for businesses struggling with rising costs. One key announcement was the continuation of the Retail, Hospitality and Leisure Relief scheme. This extends the 75% discount on business rates for eligible properties in these sectors for another year, applying to the 2024/25 tax year, albeit with a cash cap limit of £110,000 per business. This budget also saw the VAT threshold rise from £85,000 to £90,000.
However, despite efforts to boost business confidence, owners still face a challenging economic battle, including:
- Up to 12X rises in standing charges from energy companies
- Increases in business rates for some firms
- Increases in the national minimum wage from £10.42 to £11.44 an hour
This applies to businesses in England and Wales.
2. Supply Chain Struggles
While UK consumer sentiment is on the rise, there may be deeper issues in meeting it for businesses aiming to ride the wave. Ongoing global disruption has added another layer of complexity to already fragile supply chains, including the conflict in Ukraine and the Middle East, as well as ongoing attacks on vessels in the Red Sea. The need to reroute around problem areas, including such mundanities such as a drought in the Panama Canal, has reduced capacity in vessels around the world, adding extra cost and lead time to procurement processes.
Meanwhile, closer to home, proposals around new border checks with the EU could add extra administrative burden and higher costs for businesses importing foodstuffs from the continent.
Both issues will require additional planning and back-office efficiencies for owners, building in a buffer of stock in case of delays and adjusting prices in line with costs.
3. The Inflation Rollercoaster
In a rare bit of good news, UK shop price inflation fell below 2% in March for the first time in two years as retailers ramped up competition for consumer attention. However, as of yet this has not yet translated to a drop in interest rates, with the Bank of England holding interest rates at 5.25% for the fifth time in a row in late March.
In the modern, globalised economy, these types of decisions are hard to separate from their wider context. So while there is a broad agreement that, barring further disruption, the US Federal Reserve, EU Central Bank and Bank of England are likely to implement interest rate cuts in June or August, the question of who will move first remains unclear.
In the meantime, business owners are left paying more for credit, with corporate insolvencies in England and Wales in February being reported 17% higher than a year earlier and 50% above their level four years ago.
4. Investor Confidence and the Strength of the Pound
For businesses doing business across borders, the fate of the pound can have a major effect on FX rates, product competitiveness and raw material prices. Recent analysis indicates a mixed outlook, despite being positioned as one of the top-performing currencies.
Analysts predict an 80% likelihood of a Bank of England interest rate cut in June, which may affect the pound's valuation against major currencies, depending on their rate softening timeline.
A stronger pound benefits importers by making foreign goods cheaper but challenges exporters as their products become more expensive overseas. Conversely, a weaker pound could increase export competitiveness but raise costs for businesses reliant on imported goods or services.
5. Sustainability Challenges and Rules
The UK is bolstering its commitment to environmental sustainability, with a wave of regulations that stand to significantly impact businesses across various sectors. As part of this regulatory evolution, the Financial Conduct Authority (FCA) has detailed new Sustainability Disclosure Requirements (SDR) and investment labels to mitigate greenwashing risks and promote transparent, fair, and straightforward sustainability claims. Meanwhile, all FCA-authorised firms will be pushed to adhere to these anti-greenwashing rules, ensuring their sustainability-related communications are clear and non-misleading.
In tandem, the UK government is developing the UK Sustainability Disclosure Standards (UK SDS), aligning with the IFRS Sustainability Disclosure Standards. This initiative aims to create globally comparable and decision-useful information for investors, enhancing transparency in how companies address environmental and social issues. These standards consolidate existing frameworks like SECR and TCFD into a comprehensive annual reporting template.
Additionally, there is a growing focus on climate-related financial disclosures. UK entities with significant balance sheets and employee counts are mandated to report in line with Task Force on Climate-Related Financial Disclosures (TCFD) guidelines, reflecting a broader shift towards integrated climate risk assessment in business operations (Brightest).
All of these could place additional reporting and visibility burdens on businesses, requiring new data structures and internal processes around procurements and product management.
6. Hiring and Working Practices
Finding the right talent remains a challenge for UK businesses, with nearly three out of four (74%) of owners feeling hiring has become harder in the past five years. The rising cost of living and paucity of good candidates has also led to upward pressure on earnings, with wage growth sitting at 5.6% for total earnings and 6.1% for regular earnings excluding bonuses.
Working practices have also changed, with 39% of the workforce now hybrid working and 27% of employers having more than half their workforce hybrid working, though tension remains, with 98% of employers having implemented a measure to persuade their employees back to the workplace.
Finding, retaining and growing talent will inevitably require a measure of push and pull to balance the desires of workers and employers – with new working habits and new generations all bringing change to the way things have always been done. Businesses that can successfully navigate these shifts have the chance to gain a hiring advantage, but this requires an agile approach to processes, performance and planning that safeguards the interests of all stakeholders in a volatile period.
To find out more about how we can support you with evolving your organisation to manage any challenges you face, get in touch today.
