So, the new year has begun. While the rest of us are thinking about our New Year’s resolution to do 10,000 steps a day and cut down on carbs, the Prime Minister has resolved to grow the economy by harnessing the advantages of AI. Suddenly my resolutions appear less daunting!
It has undoubtedly been a challenging start to 2025 for the UK Government. Jitters on the financial markets have signalled a weakening of investor confidence in the UK gilt market at a time when capital is desperately needed to kickstart long-term, sustainable economic growth.
Government bond yields surged to levels not seen since the 2008 financial crisis; making the amount of money it borrows more expensive.
The upward move in gilt yields reflects ongoing concerns around the scale of fiscal loosening in the Autumn Budget (yields also picked up shortly after the Budget itself).
However, this has been compounded by a range of economic survey data in December/early January, suggesting that the UK private sector is weakening faster than anticipated.
GDP data published last Thursday suggests that UK economic growth is stagnant to say the least.
If growth disappoints this year, relative to the Office for Budget Responsibility’s 2% prediction, then markets fear that will lead to a worse outlook for public finances.
While cutting public expenditure might help take the pressure off a little, the Chancellor is now under pressure to increase taxes to address the public finances challenge – something she is not keen to do.
Inflationary expectations have also been behind the early January market jitters. However, inflation data published last week revealed that the UK’s headline rate is now only moderately above the Bank of England’s 2% target in December.
Looking ahead, the CBI expects inflation to stay elevated this year, partly due to Autumn Budget measures contributing to higher labour costs and some cost-push inflation as some employers are forced to pass on the rising costs.
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Interest rates are expected to come down at a gradual, quarterly pace throughout 2025 with the next cut expected in February. This should bring a little respite for businesses and households.
The rise in gilt yields is part of a more general rise in government bond yields across advanced economies.
In part, this reflects growing expectations of US trade tariff announcements in 2025/26 following President Trump’s inauguration yesterday. This would translate into stubborn inflation and a slower pace when reducing interest rates.
There are some serious challenges on the horizon, but we must concentrate on the opportunities too.
The Irish Times last week reported that Enterprise Ireland, which invests and supports the development of Irish-owned companies, had exceeded its target of creating 45,000 new jobs in the three years to 2024, by delivering 50,931 new jobs along with a £34bn increase in client company exports.
Time and time again, Irish policymakers have shown us what can be achieved by taking a strategic approach to investment and business support.
Consistency of message when it comes to a pro-business environment is key. In Ireland that uniform message is not just about a competitive corporation tax rate, but includes consistent investment in the skills pipeline and strategic delivery of critical infrastructure.
Support is given to both indigenous enterprises and foreign direct investors alike when it comes to navigating the local business environment.
This might include identifying and developing suitable locations, supporting clusters, productivity improvements, providing energy supports and R&D encouragement.
The CBI’s post-Budget survey revealed that nearly two-thirds of firms reported that the Budget will damage UK investment with half of firms looking to reduce headcount as a result.
With national policies post-Budget creating obstacles to investment, it is more important than ever that the Northern Ireland Executive do everything in their power to maintain and grow local investment levels.
With dual market access and a newly developed strategic plan from Invest NI, I am hopeful that in 2025 the Executive will have an improved business support offering for both indigenous firms and foreign investors.
Invest NI’s strategy has committed to several improvements in their approach to supporting the local economy.
These include an enhanced regional approach to supporting micro and small enterprises across Northern Ireland, a new Entrepreneurship Unit and enhanced provision for scaling up business.
Improved support for foreign investment will include the building of Invest NI’s land and property portfolio for business development.
This will ensure agility when it comes to future investment opportunities and create a much more strategic approach to investment locations.
If we want to reset our economic trajectory and really chart a path to prosperity, the time to act decisively is now, regardless of newly emerging national and global barriers to investment.
With these external challenges mounting for the local business community, there is a need for the Executive to double down on their support and commitment to delivering the ‘globally competitive and sustainable economy’ promised in the draft Programme for Government.
A combination of supporting the new Invest NI strategy, reforming planning, delivering critical infrastructure and investing in skills must be the Executive’s best path to take in the year ahead.
Angela McGowan is director of CBI Northern Ireland
