Regardless of what economy a business trades in, that economy will be intricately linked to global markets which, as we have seen, have become increasingly sensitive to geopolitical shifts and disruptive global events such as international conflicts.
Looking to 2024 and beyond, businesses continue to be at risk of disruption from global events, as well as customer behaviour, in the face of a continuing cost of living crisis and market volatility. Several current geo-political issues will continue into 2024 and may yet worsen. New crises may arise. 2024 will also see a UK general election campaign and a potential change of government.
High inflation, like that seen in the UK during 2023, erodes purchasing power, impacts consumer spending and forces businesses to adjust prices. This has come alongside high interest rates deterring investment and borrowing, fluctuating exchange impacting the competitiveness of UK exports and labour market dynamics causing disruptions due to staff shortages, also impacted by high inflation, which are likely to last into and likely beyond 2025.
Financial distress is the most common symptom of these types of crises. Understanding the contributing factors and implementing robust contingency plans will be essential for businesses that want to avoid the risk of suffering financial difficulty in 2024.
It is anticipated that the UK economy will grow by just 0.5% in 2024. While inflation is predicted to fall by the second half of the year, that may be too late for businesses that have already had to borrow during periods of high interest. Significant growth is not predicted in the UK until 2025, meaning the risk of a recession will continue to loom over the economy and businesses for much of 2024. The Bank of England is predicted to start cutting interest rates in 2024; however, even if the Bank starts to reduce its base rate, interest rates will remain far above recent norms for some time to come.
Alongside these conditions, many businesses continue to face weaker consumer demand because of the cost-of-living crisis. As government-backed cost-of-living support is phased out over the next year, many individuals will have less disposable income. The collapse of prominent high street brands like Wilko in 2023 shows how once stable businesses can be abandoned by their customers if they fail to adapt to changing behaviours. An online presence is essential; businesses that neglect to engage in digital marketing, customer interactions, experience, and services will miss out on a considerable proportion of their relevant markets and face a greater risk of failure.
Going into 2024, businesses should focus on their financial resilience. Keeping up to date with industry trends, as well as those within the wider economy, will help inform business strategy with a view to remaining agile and continuing to succeed even in less than favourable trading climates. Having a crisis plan in place to identify the risks to your business early, enable the business to plan and take steps to deal with disrupters and mitigate further damage can be key to survival when disaster hits. Going in to 2024, having a crisis plan which deals with adjusting to difficult labour markets, high energy costs, and supply chain fragility, as well as accommodating evolving consumer behaviour is likely to be important to maintaining financial resilience.
We see all too often how unprecedented world events result in business failures due to a business being unable to adapt quickly enough to meet such events head on. Looking ahead and actively planning how your business will manage challenges that arise and having contingency plans in place to put the business in the best position for recovery will be key.
In some circumstances, exploring a restructuring of your business may be the best form of attack. The new style moratorium and restructuring plans which now form part of the UK's broader restructuring tools may be key to a business's survival and should certainly be a consideration for any business managing the risk of acute financial pressures.
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