13 Jan 2023

View from Chancery Lane - Michael Moore looks at the challenges and opportunities that lie ahead in 2023

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The decorations are packed away for another year. And the new year resolutions have suffered the same fate. But a couple of weeks into 2023 one tradition holds firm – after year end reflections, January is the month to reset and time to plot the year ahead.

Ignoring our cluttered inboxes, the year end routines and the realisation that winter still has a long way to go, there are some big picture issues we need to focus on: the economy, politics and how the industry is preparing for the new year’s opportunities and challenges.

Expectations about the economy are mixed to say the least – the Bank of England’s chief economist has reiterated his concerns about the early stages of recession. The worst of inflation may be behind us, but there remain hotspots. And while energy prices look to be past their peak (for now), consumers and businesses face a difficult period of adjustment as public subsidy is withdrawn and the impact of the war in Ukraine remains uncertain.

Things feel more certain on the interest rate front, but not necessarily in a good way. The steep (and relatively sudden) rises of 2022 are baked in for some time to come – and here, too, the uncertainty is on the down side, with no clear picture of how far rate setters will go as they seek to curb inflation. One and a half million fixed rate mortgages lapse this year and countless businesses will be refinancing, too, meaning that this year’s budgets may look materially different to those of 2022.

All of this will feed into the politics of the moment. Ongoing industrial action across the public sector (and many parts of the regulated private sector such as rail and post) is in large part driven by these short term economic factors (although exacerbated by disagreements over structural change within industries, too). Already we have seen the tone sharpen across the despatch boxes in Parliament as the Prime Minister and the Leader of the Opposition ready themselves for an election which will happen next year, we can all but guarantee.

After the extraordinary twists of 2022, the politics of the next twelve months should be less distracting, but will be no less strident. Labour’s poll lead is not one they will take for granted, and the Conservatives will look to claw back a winning position. Meanwhile, everyone will be trying to figure out how to tackle the problems of the public finances while developing manifestos which will still actually win them votes at the election.

Filtering all of this through to the industry, the economics feel more relevant than the politics in the short term. As highly engaged owners, the industry previously steered a route through the ‘Great Financial Crisis’, and more recently the trauma of COVID. Already private equity and venture capital have been working closely with portfolio companies as the economy has turned. Expectations have had to adjust, but the active ownership model is robust and confidence about navigating the current uncertainty is clear.

In the medium term (or put another way, as the election gets closer), that economics-first-politics-second prioritisation may well reverse. We are already anticipating it. Indeed, we spent much of late 2022 building closer ties with all the major parties, demonstrating the public value the industry creates and de-mythologising some of the perspectives we encounter in the media and Parliament. That involved multiple meetings with Ministers, contributing to the Labour Party Start-Up Review and their business conferences, scaling up our ‘MP Connect’ programme and engaging with the media.

So, the new year reset sees us back on the trail already and looking forward to another productive year, without thinking twice about those abandoned new year resolutions (which can always be dusted down and recycled this time next year…).

 

Michael Moore
Director General, BVCA


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