Where have we got to? Economic outlook for marketers

The first quarter of 2024 has tentatively eased off the economic pressures seen for the past two years. Inflation has lowered, and overall GDP growth in the UK- albeit very minimal - has returned. What does this mean for digital marketing and ecommerce?

At the end of 2023, heading into the holiday peak period, things looked a little grim. The UK economy was in a very slight recession, inflation was falling but had only just fallen past 5%. Consumer confidence was still low, mortgage hikes were taking away disposable income, and retailers were braced for a difficult Christmas and sales season. It was a case of holding on and not flinching - and indeed sales were flat or slightly depressed over the New Year.

But now with a quarter of more positive economic performance behind us, it’s time to take stock again. What is the outlook for 2024, and where have we got to now?

What has happened?

The energy shock from Russia’s invasion of Ukraine combined with the trough after the pandemic period’s spikes have now worked themselves out in the economic system. In the UK, the extra layer of mortgage costs suddenly rising after Truss’ mini budget have also now landed and been factored in. As wages have risen, the current outlook is now no longer one of tightening spend against an uncertain future. The result is a return of more stability and that’s the basis for a return of consumer confidence and positive demand.

UK economy ‘like a snail on a slope’

The triple shock the UK experienced led to inflation reaching 10%, and a technical recession in H2 2023. Now that’s over - inflation is forecast to be 2.2% average across 2024 (OBR) - and Q1 2024 is set to have seen 0.9% GDP growth in the UK. 

This is much better than unpredictable costs and plummeting consumer confidence. The turnaround may be slow but it is a turnaround nonetheless - imagine a snail moving up a slope.

Of course, the inflation and mortgage rises of the last 2 years are still built in, off-set by wage rises but still dampening consumer spending and confidence. 

Demand slowly rising

We saw a modest Easter/March pick up in demand, and April data shows this continuing (1.9% growth according to Barclays payment data). Consumer confidence is tracking at -21 rather than the -40 it bottomed out at in 2023.

For retailers wanting to forecast demand across 2024, disposable income is tracking upwards (see OBR chart), so we should see revenue edging ahead of 2023 dependent on sector. This is borne out in business growth data - however one caveat is that the service sector and manufacturing are diverging, with services doing better.

We won’t see sudden upticks in conversion rates or revenue numbers, but we can expect a longer term recovery across 2024 and into 2025.

Ecommerce growth - UK vs US

Ecommerce is carried along as part of overall retail sales - but crucially, it grows as a proportion of the total as more people shop online. This is the key trend for digital marketers. Currently, in the UK 38% of sales happen online, with a 4.2% growth currently predicted year on year in 2024.

In the US, this is estimated to be 8% growth YoY. The UK has a slightly higher rate of ecommerce adoption historically, but the US is closing the gap.

Why? The US economy is diverging from the trends for Europe/UK, with GDP growth set for 2.7% in 2024 (vs 0.5% in UK). Within this very different picture in the US, ecommerce is also benefiting from an even bigger surge.

Interest rates key indicator for 2025

Central bank base interest rates are the crucial factors to watch. In the UK, the Bank of England as ratched up the brakes to 5.25% to ward off rocketing inflation levels. Now inflation is falling, will they ease off from 5.25%? Well, 2% is the inflation target for the Bank, so there’s still some road to run. We probably won’t see 5.25% move back down until the autumn. When that happens it will indicate a further phase of stability setting in, with the Bank seeing a need for higher liquidity to boost growth rates. If that moment comes before 2024 closes, it is key to factor in for 2025 forecasts and plans.

Year of elections and wars

The Russia Ukraine invasion is now factored in, but what about conflict ongoing in the Middle East? Being close to oil producers and to the Suez trade route, we might expect market wobbles down the line. However, so far oil prices remain uncorrelated, partly because the US is also an oil producer.

The US presidential election is also set to take up a lot of news time (on top of elections in India and UK and many more) - but economic policies are not substantially on the line. Biden has continued Trump’s trade policies, for example; and UK’s Labour promises to maintain fiscal rules already budgeted.

Global trends

The IMF currently predicts three years of global growth at a level of 3.2%. This is a reset to 2019’s 2.6% growth trend broken off by 2020’s pandemic and aftermath, followed by Russia’s invasion of Ukraine in 2022. This follows a basic narrative intuition: that 2024 is now picking up from trends projected forwards from 2019.

Ready, Reset, Reforecast

If budgets and targets for 2024 were set based on H2 2023, then a reforecast may be needed to better capture a more positive demand outlook.

Certainly as we see more months of lower inflation and higher consumer spending, the reset from ‘holding our nerve’ to ‘mild recovery’ should frame 2025 forecasting and the parameters finance teams will set.