Clinical focus amidst the chaos
It is really wearing. Business folks are, by definition, competitive people, who want to get on, to build, to create wealth and they tend to flourish when the context, the climate, is positive. Whilst so, in the main they will battle on when headwinds emerge, often in the hope that when better weather arrives, they can press on.
Government is not the be all and end of all of the business climate, far from it, but when the state becomes a major headwind, then it is capable of sapping the necessary energy, idea generation and, indeed, stamina that is the heart of entrepreneurship. To be clear, the Tories were an absolute show of excrement for much of British business for many years, high on rhetoric but truly awful in governing, leaving the new Labour administration a rather rotten deck of cards.
In this respect, Labour’s massive majority is interesting, as it was arguably the least bad outcome from an electorate tired of the selfish and self-consuming Conservatives, an electorate for which a very considerable minority did not vote. As such, there was little euphoria in the normal streets of Britain for Labour’s victory, rather a relief that chaotic regimes from May to Sunak were over and a hope for rather boring pragmatism.
Barely six months in and boring pragmatism is not the storyline. Ideology, naivety, stupidity, and ignorance have shown the supposed Labour Government to be far from grownups, as they liked to be labelled, but a shower of over aged school kids that do not have a clue about how firms, markets, and private capital works. Should we be surprised, given that hardly any Cabinet Minister has any business or real market experience, well no.
However, what we have achieved through the dreadful pre-Budget messaging and the raid on British business in October is a material fall in business confidence, the emergence of downgrades to UK economic growth – where Labour has already abandoned its pledge for the UK to be the fastest growing G7 economy (which was always bullshit) – a growing concern about the inflationary impact of higher employment taxes, amongst other things (e.g., EPR) and a material sell-off and repricing of gilts, the bonds that the UK Government issues to keep the lights on.
Indeed, even with higher taxes, the big step up in Government expenditure is being reassessed by the gilt market, and it is now a hope and prayer that sterling does not follow suit. Rachel Reeves, Chancellor, is out of her depth and the parallel universe of global capital markets, not a wholly rational or friendly place, is smelling blood. Indeed, much of the supposed contingency that Reeves allocated at the Budget has been absorbed by the higher Government financing costs as a result of the increase in gilt yield.
Quite how all this pans out, remains to be seen. One area of great concern is the UK labour market, which has been the blessing of this century for the UK economy, that is near full employment and so low unemployment and the tax take that emerges. Every firm in the UK is looking at its labour process afresh post the Budget leading already to falling vacancies, lesser hiring and once suspects the commencement of a potentially material increase in unemployment with all that means for a bloated prevailing welfare bill.
Few British households have, in the main, had to overly worry about job security for a generation, but that may be, is, changing. Job security is the bedrock of consumer confidence, which over time filters into the various markets from groceries to houses. If Labour does not gain a grip and soon, floodgates may be about to open on labour shedding, the irony of a Labour government, directly driving good working people, as it likes to call them, out of the market.
Within all this emerging gloom, the food system is upfront and central with its vast, 4m+, labour pool, leading Shore Capital to raise its expectation of 2025 UK food inflation from +/- 1.5% to 3.0%+, ending the year maybe over 4%; the British Retail Consortium subsequently speaking to c4% food price appreciation in 2025. Such price growth should be manageable for most households, but it does mean more angst between supermarkets and their supply chains around cost recovery, whilst expending more on food, means, as the private sector progressively eases back on wage growth, less for households to allocate elsewhere; those working in the increasingly unproductive public sector do not have such worries, of course.
Within this context, I continue to see Coriolis as more not less important, given its high capabilities to improve unit productivity, not just measured on labour, but the efficiency of lines, the cost of manufacturing, and the processes and cultures that underpin such thinking. With labour being repriced in the UK, automation, digitisation, and robotics will become ever more relevant, permanently replacing people, whilst generative AI starts to become real over conceptual and imaginary.
If you wish to explore how Coriolis can help your business, give Mark Dudley and his team a call, one senses that with all that is going on, it is much better to be on the front foot. One has to hope that Labour smells the coffee of market signals pronto, reflects, and seeks to create the climate where business can flourish. However, doing so is an ideological battle for the party too, not mere pragmatism, and so one senses that a more pragmatic business approach is necessary, where Coriolis can be a useful tool.
Very best wishes for 2025, where I hope a more sanguine mood can yet emerge.
Dr Clive Black
Senior Advisor
Coriolis Consulting
January 2025
