Struggles of the City are bellweather for struggling UK economy: Martin Towers

It is certainly not easy to tell for there are many headwinds still blowing out there and over which business has no control. For many, business conditions remain tough and challenging both in the UK and abroad. Inflation may be at 3.4 per cent and interest rates have probably peaked.

The direction of travel from here appears downwards on both counts, particularly if cost pressures have eased and demand remains subdued.

But there are plenty of elephants in the room. People know that so uncertainty still prevails as does a lack of confidence to invest longer term for the future and improve productivity, the key to rising living standards.

Finance is available but on a selective basis and costs much more. Businesses do not want to over-burden themselves with debt reflecting boardroom caution stemming from a lack of confidence.

What we can say in the UK is that the housing market has not crashed as some more alarmist commentators had predicted. This market is cyclical in nature whilst also a key ingredient of household confidence and general willingness to spend.

In the UK as elsewhere the forces of supply and demand dominate house pricing. There is a shortage of property against demand thereby sustaining prices. So the downside risks for the economy are limited in this pivotal sector.

Early reports this year suggest improvement in trading conditions for the housebuilders which likely will gradually encourage the repair and maintenance market in household goods as well.

This plateauing in the UK economy is being felt keenly in the City. The US economy is displaying more resilience and growth. Valuations are higher. Is the City becoming a bell weather for the state of the UK economy? Has the London market become a backwater, increasingly shunned by big global players who see higher valuations, better liquidity and their actual business located outside the UK?

The Jurassic Park tag to the City has a ring to it as growth companies list elsewhere. It is unlikely that softening the regulatory environment in the UK will overcome the relative market fundamentals unless the City and therefore the UK can carve out niches of expertise and competitive advantage to take on bigger exchanges in certain sectors.

We also face a General Election likely at some point later this year. The outcome adds to the prevailing business uncertainty. If the polls are right Labour will sweep to power and the Conservatives will be decimated, maybe taking the SNP with them.

Beyond the general fear of even more taxation and government spending associated with Labour, current circumstances post pandemic dictate a very limited room for manoeuvre for whoever is in power. Look at the market reaction to Liz Truss.

So the traditional fear from business of a Labour government may not apply in current circumstances.

2024 is therefore shaping up to be a wait and see year. Business conditions have stabilised, are unlikely to collapse but also no sign of significant improvement.

What could possibly go wrong? The US also has an election in November. Donald Trump, the great disruptor, could be back in saddle.

Martin Towers is the former finance director of Kelda Group, which was the parent company of Yorkshire Water, and former CEO of Spice PLC