There are a range of factors that will impact us nationally over the five year period of our Medium Term Financial Strategy and which in turn, will present further challenges for East Ayrshire.
The current national outlook is one where it seems that pressure, volatility, uncertainty and a sense of foreboding are the order of the day. Taking stock of these factors and looking into the future brings little in the way of reassurance or resolution in the short to medium term. It is clear that as these pressures mount, and the need to support households increases, there will be little additional scope for either the UK or Scottish Government to generate or identify funding to support the public sector.
The scale of the challenge is deemed so severe at the moment that the public sector will need to develop a dynamic perspective on how their operating and economic environments will evolve, but also assess the opportunities and risks that these scenarios present.
The challenges for the Council will vary over the next five years, however it is clear that our Strategic Plan and our Medium Term Financial Strategy will play the lead role in ensuring that the Council delivers its priorities and does so within sound financial parameters aligned to financial resilience and probity.
International outlook
Internationally we continue to see the unintended consequences and pressure points following the UK’s withdrawal from the EU and while the government is seeking to reduce these pressures they have been exacerbated in the last few years by supply chain and other issues which have in turn led to adverse impacts on the wider economy.
The tragic war in Ukraine as resulted in widespread disruption of goods and displacement of people and has heightened the uncertainty that already existed. The scale of the financial intervention by the UK Government during the coronavirus (COVID-19) pandemic was unprecedented with the resultant borrowing levels only surpassed by the relative borrowing that took place during the Great Depression and World War II.
The UK Government’s decision on how to deal with the financial impact of COVID-19 is not yet known, however it's most likely approach is one where there is a prolonged period of fiscal constraint that will see public sector grant funding reduce in real terms for a significant period.
Cost of living
Households are currently experiencing a cost of living crisis across the UK. Increasing food and energy costs are the greatest concern for most with energy costs now accounting for an extremely large proportion of household spend.
The recent volatility of the energy market has also seen energy costs become a key contributing factor in driving up inflation in the UK. The continued war in Ukraine, the unscheduled maintenance carried out on the Nord Stream 1 gas pipeline and the preparations by some European states to purchase and stockpile gas has led to demand vastly outstripping supply, with energy prices reaching unprecedented levels.
The most recent projections on energy costs show that prices will continue to rise throughout 2023. This led the energy regulator Ofgem to shorten the period between energy price cap changes with revisions moving from six months to three months in order to protect energy providers.
The Bank of England’s Monetary Policy report published in August 2022 revised its previous forecasts on inflation, noting that high inflation rates would last longer than previously anticipated. The report also presented a stark message signalling that the United Kingdom is projected to enter recession by the fourth quarter of 2022 and that, as inflation falls and prices stabilise, then unemployment will begin to rise from 2023.
Strategies and plans
Comments and suggestions
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