UK Economic Analysis, Macro Trends and ECPR

Intrum Senior Economist Anna Zabrodzka-Averianov outlined the risks to the UK economy in 2024 and gave a global perspective on economic trends. While the US economy has been performing better than feared, China’s reopening post-Covid has been disappointing, with initial recovery short-lived, she said.

In Europe, she referred to a “mixed bag”, with Germany in recession since earlier this year, while  Southern European nations becoming drivers of economic growth and the strength of the tourism sector has been a welcome surprise. Meanwhile, the UK’s services-driven economy means it has been severely affected by the rising cost of labour. The UK is also one the biggest importers of food and drink, which affects inflation.

UK inflation ‘sticky’

The IMF expects the UK to be the worst performing economy out of the G7 countries because of inflationary challenges. Inflation is much more sticky in the UK, still close to five per cent and not expected to be at the target of two per cent until mid-2025. However, the UK economy managed the first half of 2023 much better than expected.

Zabrodzka-Averianov said the speed of the increase in interest rates has created economic strain in the UK and the full effect of this has yet to be seen. Many people are due to come off fixed-rate deals on their mortgages, which they took during years of ultra-low borrowing costs, and face hefty monthly payment rises.

We are probably at the peak, but interest rates are likely to be high for the next six months. The creates issues not just for consumers and businesses but government itself, with yields on GILTs at a twenty-year high.

Payment impact severe for business and consumers

When it comes to payments, households and businesses are struggling. While the ratio of non-performing loans is broadly stable, default rates are up and stage two loans (those pre-default) are at 12 per cent, compared with pre-pandemic levels of less than 10 per cent. Bankruptcies are at their highest level since 2008.

She said businesses should take an empathetic approach and build strong relationships with customers, helping to boost their financial literacy and fully explain the implications of missed payments, where possible.

With stubbornly high inflation and the cost-of-living crisis, the UK is one of the most difficult collections environment. Heavy-handed efforts to tackle late payments will backfire. Focus on supporting customers and on payment options that can help. Take opportunities to build trust.