As of January 2025, UK small and medium enterprises (SMEs) are facing unprecedented challenges, with confidence levels plummeting to their lowest recorded point in history, according to a recent report by ACCA. This decline follows the announcement of significant tax increases for employers in the Autumn Budget, which have exacerbated the already fragile economic landscape [4081dc5f]. The previous low in SME confidence was noted in Q3 2022, indicating a troubling trend for the sector [4081dc5f].
The Global Economic Conditions Survey (GECS) conducted by ACCA and IMA highlights the negative impact of rising National Insurance contributions on firm sentiment, further complicating the operational environment for SMEs [4081dc5f]. Glenn Collins from ACCA UK emphasized the urgent need for government intervention to facilitate business growth, particularly as global economic resilience is observed in other regions, contrasting sharply with the UK’s struggles [4081dc5f].
In the broader context, the U.S. economy is also exhibiting signs of fragmentation, with various economic indicators revealing a complex and often contradictory picture. Recent data from the Institute for Supply Management (ISM) indicates that the Purchasing Managers Index (PMI) for manufacturing rose to 49.3 in December 2024, the highest level since March, up from 48.4 in November [f766b3b6]. However, this figure remains below the critical 50 threshold, indicating that the manufacturing sector is still in contraction for the ninth consecutive month. Notably, seven industries reported growth, including primary metals and electrical equipment, while sectors such as textile mills and machinery faced contraction [f766b3b6].
In a concerning development, new orders for U.S.-manufactured goods declined by 0.4% in November 2024, following a revised 0.5% increase in October [456a3ea6]. This decline is attributed to the Federal Reserve's monetary policy tightening over the past two years, which has significantly impacted manufacturing, a sector that represents 10.3% of the U.S. economy [456a3ea6]. Non-defense capital goods orders fell by 0.9%, reflecting broader economic challenges [456a3ea6]. In contrast, the Services PMI stood at a healthier 55.3, suggesting growth in the services sector [092ca57d]. This divergence reflects a broader trend in the economy, where certain sectors thrive while others struggle. Employment data also presents a mixed narrative. The ADP reported that 233,000 jobs were added in October, while the Bureau of Labor Statistics (BLS) indicated a much lower figure of only 12,000 jobs added [092ca57d]. This discrepancy has led to skepticism regarding the accuracy of U.S. economic data, with analysts like Kung Chan questioning its reliability [092ca57d].
Compounding these issues, the Sahm Rule was triggered as the unemployment rate rose to 4.3% in July, suggesting potential economic downturns ahead [092ca57d]. Despite these challenges, GDP growth was reported at 2.8% for the third quarter, and the Core PCE price index rose by 2.2%, indicating persistent inflationary pressures [092ca57d].
In December 2024, the Federal Reserve cut interest rates by 25 basis points to a range of 4.25%-4.50%, marking the third consecutive cut since September [f766b3b6]. Sal Guatieri, a senior economist at BMO Capital Markets, noted that while there is a hint of optimism in the manufacturing sector, challenges remain [f766b3b6]. Potential interest rate cuts and tax reductions may provide some relief to the manufacturing sector, although proposed tariffs could increase raw material costs, complicating the recovery [456a3ea6]. In the retail sector, dollar stores have reported declining sales, further illustrating the uneven recovery across different segments of the economy [092ca57d].
Meanwhile, the UK manufacturing sector is also struggling, with the purchasing managers' index (PMI) for UK manufacturing falling to an 11-month low of 47, while the services PMI was at 51.1 [5278f2e5]. Manufacturing output in the UK is over 10% below pre-pandemic levels, with a staggering 37% drop in chemical production and a 30% decline in automotive output [5278f2e5]. High energy prices in the UK further hinder growth, with UK steelmakers paying 30% more for electricity than their German counterparts [5278f2e5]. Trump's proposed tariffs could impact £60 billion of UK goods exports to the U.S. annually, although he has denied plans to reduce tariffs despite reports to the contrary [5278f2e5].
Overall, the current economic landscape in both the U.S. and UK is characterized by fragmentation, with significant disparities between sectors and conflicting data points that challenge the narrative of a uniformly recovering economy. The ongoing analysis of these trends will be crucial for understanding the future trajectory of both economies.