2023: a year in review Share indices, transaction activity & economic outlook
Another year of uncertainty & disappointing growth
Economic outlook Despite the UK economy being expected to avoid a technical recession, growth is likely to remain low with a growth rate of 0.3% expected in 2024. The downward revised growth rate reflects the negative impact of inflation and interest rates and their dampening effect on overall investment. Figures show UK economic growth has averaged 0.14% in the last two years. The consistently high inflationary rates have had significant, long-term impact on UK households and businesses. The forecast for the CPI remains unchanged at 5% in Q4 2023. In addition, forecasts suggest inflation will take longer to return to the 2% target level, reaching the goal in the last quarter of 2025. Households are seeing an increase in their incomes in real terms, however the outlook for consumption remains weak. Discretionary spending remains fairly low due to low consumer confidence which despite an increase remains below pre-pandemic levels. Alongside inflation, interest rates remain high and are expected to peak at 5.25% therefore putting downward pressure on growth. Considering the complex economic conditions businesses currently face, it is clear that some sectors have faced challenges whilst some have performed surprisingly well. Rises in European interest rates have been lower than either the UK or US with the UK and US fluctuating relatively in line with one another. Most recently, interest rates in the US have stayed higher than the UK at approximately 4.41 compared to the UK at 4.22. Increased input costs, the withdrawal of government support as well as weaker growth prospects in the household and corporate sectors, have resulted in an elevated risk of insolvencies.
Transaction market Over the past year, the M&A market has faced a slump in deal activity globally as a result of rising interest rates, geopolitical instability and recession concerns. However, as at Q4 2023, M&A activity is showing signs of revival. The first half of the year resulted in a decline in activity with fewer larger deals and a decline in average deal size. However, mid-market deals activity remained more resilient. Gaps in valuation expectations between buyers and sellers continued to feed uncertainty whilst high interest rates made financing deals difficult. However, deal activity has subsequently accelerated, pointing to further strengthening into 2024 as the macroeconomic environment stabilises. All of this points to mixed fortunes for companies and ongoing volatility in the markets and therefore company values. As experts, we will continue to request as much information (both historic and current data) as is proportionate in order to assess the valuation of the companies we are instructed to report on. We also expect to continue to receive requests for updated valuations to reflect changes in business fortunes.
Share indices Over the year to date, the UK FTSE has ranged between index values 8014 and 7257. The economic outlook impacted certain sectors adversely, but other sectors have seen significant increases in share value. In particular, Rolls Royce Holdings Plc, Marks & Spencer Group Plc and Melrose Industries Plc have recorded the highest total returns out of the FTSE 100 companies. Despite significant losses as a result of the global lockdowns, the conflict in Ukraine has resulted in increased spending on defence, heavily benefiting Rolls Royce. However, there have been some heavy falls in the FTSE 100 with companies such as Fresnillo, Entain and Anglo American recording slumps in share prices as a result of volatility and a decline in performance.
0.3% Growth Growth rate expected in 2024. 8014.31 High Highest rate on the UK FTSE in 2023. 5.25% Interest rate Expected peak rate of interest in 2023.
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