Stronger-than-expected Q2 results have led to an upgrade in the UK's 2025 GDP growth forecast. Despite this, growth is expected to slow in 2026. Inflation picked up in July to 3.8%, slightly above the Bank of England’s projection, mainly due to rising air fares. Meanwhile, the Bank of England has reduced the bank rate to 4%, but mixed signals from the Monetary Policy Committee have undermined confidence in future rate forecasts.
Excess savings run-down
Consumers spend much of their pandemic savings, driving a robust global recovery and pushing 2025 global GDP 1.1 percentage points above baseline.
Higher for longer interest rates
The global economy would slow, growing by only 1.3% in 2024 and 2025, significantly below the baseline forecast.
Increased China-Taiwan tensions
Under this scenario, world GDP would grow by only 1.2% in 2024, significantly below the baseline prediction.
Middle East escalation
Global GDP in 2024 would grow by 1.3%, below the baseline forecast of over 2%.
Key drivers of the short-term outlook
- The increase in employers' NICs is dampening employment and pay growth.
- Fiscal policy is tightening with tax rises accounting for most of this.
- Businesses are passing on costs.
- The BoE will continue to gradually loosen monetary policy.
- The impacts of past rate hikes will continue to dominate.
What to watch out for
- Further fiscal tightening.
- Planning reforms.
- The impact of April's NICs and National Living Wage increases.
- US trade policy, as US trade remains unstable.
Produced by the Foresight Factory for the IPA Commercial Group
