Economic good news has, it is fair to say, been thin on the ground over the last few years. The COVID-19 pandemic set the global economy reeling, with governments across the world forced to intervene to keep businesses afloat.
No sooner had we started the tentative process of emerging from lockdown than Vladimir Putin decided it was a good idea to invade Ukraine. The consequent application of international sanctions against Russia led to a retaliatory tightening of energy supply by the world’s biggest producer of natural gas and an increase in commodity prices with, in turn, a jump in inflation.
The past few months of winter have been especially difficult, but, at last, it appears that there are better economic prospects on the horizon. Both the Office for Budget Responsibility (OBR) and the Bank of England expect the annual inflation rate to ease in 2023 as the steep rise in energy costs of 2022 fall out of comparison. The OBR expects inflation to slow to 2.9% by Q4 of this year, with the Bank of England predicting a slightly higher rate of 4%. Both forecasts are of significantly lower rates than the current 10.4%.
The steadying of inflation is in itself good news, and this was bolstered by the publication this week of the latest Deloitte Survey of Chief Financial Officers (CFOs) of some of the UK’s largest businesses, including 11 FTSE 100 and 24 FTSE 250 companies, with a combined market value of £253 billion, or around 10% of the UK quoted equity market.
The survey reveals a significant increase in CFO confidence since the beginning of 2023, the largest since the rollout of COVID-19 vaccines in 2020. CFOs’ perception of external economic uncertainty has shown the biggest decline on record, with Brexit and high energy prices or disrupted energy supply seen as posing significantly less risk than at the end of 2022.
Nevertheless, international geopolitical risks, including the war in Ukraine, are still regarded as the biggest threat to business. Quite clearly, until such time as the Russian aggression comes to an end, CFOs will not be breathing entirely easily.
Interestingly, this quarter’s special survey question examines the impact of artificial intelligence (AI) on the business sector. The CFOs surveyed expect to see substantial growth in capital expenditure on AI, which, overall, they expect to help drive UK productivity. They are, however, almost equally divided between those who believe that AI will lead to an increase in the number of jobs and those who believe it will shrink the workforce.
As one who has been experimenting with ChatGPT over the past few months, I suspect that the truth is that humans will quickly adapt to the advent of AI and find currently unforeseen uses for it. Just as computers did not, as feared, replace human workers, but instead contributed to the conditions that have resulted in record levels of employment, so AI, if used wisely, should help boost our economy. Luddism is invariably the wrong response to innovation.