The overall economic landscape continues to pose uncertainty for many charities. There have been further announcements by the UK government around the growth agenda which mark a welcome step towards stimulating the economy. In addition to unlocking private sector capital, the role of civil society can be an important piece of the puzzle.
There have also been wider political and geopolitical developments, including in respect of the sustainability of funding for international development from the new US administration. This is a key area of concern for impacted charities, and appropriate action will need to be taken.
Stagnation
The Office for National Statistics (ONS) estimated that UK gross domestic product (GDP) grew marginally by 0.1% in the last quarter of 2024. This was higher than consensus but was consistent with the Bank of England’s view. The broader picture remains one of stagnation.
The ONS reported that the consumer prices index (CPI) jumped to 3.0% in January 2025, up from 2.5% the previous month. This follows the surprise drop last month and is now at its highest level for 10 months. Some of the key drivers behind this were predictable, but this level is higher than consensus expectations. With goods and services inflation rising, this is an indication that inflationary pressures persist across the economy.
In February 2025, the Bank of England’s monetary policy committee (MPC) cut interest rates by 25 basis points to 4.5%, with an overwhelming majority in favour. To some extent, the MPC anticipated the higher level of inflation, although it does represent a speed bump in the road to lower rates.
The prospect of further rises will reinforce their stance on loosening monetary policy “gradually and carefully”. Rate cuts are expected in due course but it will all come down to timing. Barring any surprises, the delayed effects of a less restrictive Bank of England monetary policy should enable economic activity to start to pick up later in the year.
The ONS data shows that vacancies have fallen again and the unemployment rate is steady at 4.4%. The labour market is therefore continuing to cool. The annual growth in regular pay from the ONS remains elevated at 5.9% in the three months to December 2024.
Although wage growth still appears sticky, there are indications that employers are tightening their purse strings as the impact of the measures in the autumn budget takes hold. This mirrors the pressures that charities have been responding to, and many have adjusted their plans and forecasts accordingly.
Daniel Chan is partner and charities leader at PwC
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