How will the economy fare in 2023?

Charity finances are inextricably linked to the fortunes of the economy, from their ability to spend and deliver services to how much they can expect from funding and donations.

 

If the economy is dipping, as it is during the 2023 cost-of-living crisis, then charities can expect a challenging time financially. They receive less from investments and cash-strapped donors and funders, while their own costs, most notably energy bills, rise. This could mean reserves have to be plundered to survive.

 

To help charities plan better and inform their decisions, keeping tabs on the latest crystal ball-gazing by financial experts is vital.

 

Here, we outline the key areas of the economy for charities to look at and the latest predictions for 2023 and beyond.

 

 

Economic forecasting

 

A key indicator of how well an economy is faring is its gross domestic product (GDP), which measures the total market value of all goods and services. Among those producing regular GDP forecasts is the Confederation of British Industry (CBI). Its December 2022 forecast for the year ahead proves sombre reading.

 

The CBI is predicting that the economy will contract by 0.4% in 2023. A significant reason is that productivity after “a turbulent year both politically and economically” is weak and 2% below the pre-pandemic trend.

 

Business investment is also down and is set to be 9% below pre-pandemic levels, according to the CBI, which predicts a “year-long fall” in consumer spending.

 

Another important body for economic predictions is, of course, the Bank of England, which, at the end of 2022, was expecting the UK’s economic recession to last for the whole of 2023 and the first half of 2024, when it will eventually recover.

 

 

Charity sector forecasting

 

Many organisations within the charity sector, such as environmental charities and those who run care services, offer their own predictions of how the economy will impact the good causes they support. Often this is through umbrella bodies that represent hundreds of charities.

 

Among recent examples is Hospice UK, the infrastructure organisation for the hospice sector, which produced its Hospice Health Report in January 2023, monitoring data from more than six million donations made to 38 hospices.

 

Worryingly for the sector, the 2023 report predicts that “due to the economic outlook, average gift values are expected to fall at a time when costs are spiralling”.

 

 

Value of legacies

 

Charities are also urged to monitor housing market predictions, as the value of homes for sale can be a good for predicting future returns from legacy gifts and the value of estates. There is a raft of house price indices available from, among others, lenders Halifax and Nationwide.

 

One of the most up-to-date datasets is provided by property website Home.co.uk, which bases its monthly figures on current asking prices. In January 2023, it found that house prices had risen 1.9% over the previous 12 months. This is substantially down on the 6.9% annual house growth recorded by the property website in January the previous year and indicates that charity legacy income is set for decline in 2023.

 

 

Inflation

 

Inflation severely damaged charities’ coffers in 2022 and will continue to do so throughout 2023, by reducing the value of donations, increasing costs involved in keeping centres and offices running, and creating a spike in demand for services as household income suffers.

 

Monitoring the Office of National Statistics’ monthly Consumer Prices Index is vital for charities to understand how their finances will be impacted by inflation. For example, January’s Index revealed that prices rose by 9.2% in the 12 months to December 2022. This is still edging towards double digit inflation but is down from the previous month when the rate of inflation was 9.3%.

 

To better understand the figures and use them to forecast the longer-term rate of inflation, charities can refer to analysis from thinktanks such as Pro Bono Economics, allowing them to adapt their planning, especially around service delivery.

 

The think tank is predicting that prices will continue to rise throughout 2023, although inflation will fall and could be around 7.4% during the year.

 

 

Employment market

 

The latest labour market figures are also published regularly by the ONS and charities are advised to monitor these quarterly releases. The most recent, from September to November 2022, puts the UK employment rate at 75.6%, largely unchanged from the previous three months.

 

As with information around inflation and GDP, there are a raft of experts using the data to forecast how the employment market will look in the long term. Using their forecasting will assist charities in negotiating with staff over pay and assessing the advantages and disadvantages of either hiring more staff, or considering redundancies.

 

Among those offering such predictions is PwC, which is predicting that more than 300,000 people will return to the labour market in 2023 due to increased immigration. The financial firm is predicting this will reduce staff shortages in skilled sectors, which will be of interest to charities struggling to fill specialist roles.