Oxford Economics has lowered its 2024 GDP forecast to 0.4% (down from 0.6% in January) largely due to the carryover effect of weak growth in Q4 2023. Nevertheless, they expect a fall in inflation and looser monetary policy to build positive momentum in the months ahead leading to a forecast 1.8% GDP growth in 2025. According to the UK Treasury’s February 2024 survey of independent forecasts, the average forecast for 2024 is 0.4% (unchanged from January) and 1.2% for 2025.
Economic Growth
The UK economy ended 2023 in a mild recession having contracted in both the third and fourth quarters of 2023, by 0.1% and 0.3% respectively. OE believes the downturn will be short-lived, with more positive indicators having emerged since the start of the year e.g. business surveys which track private sector investment and sentiment rose to an eight-month high in January.
Inflation
According to the ONS, the largest upward pressures to the monthly change in annual CPI inflation rates came from housing and household services (principally higher energy charges), while the largest downward pressure came from furniture and household goods, and food and non-alcoholic beverages. The pace of annual food price hikes has been easing in recent months, dropping from a peak of 19.2% in March (the highest in over 45 years) to 7% in January.
Unemployment
According to the ONS’s Labour Force Survey, unemployment was 3.8% in the three months to December, down from 4.2% in the previous three-month period. Of particular note, historically high numbers of people are reporting that they are long-term sick.
Earnings
From October to December, average total earnings grew by 5.8% and regular earnings (excluding bonuses) by 6.2%. After inflation, real earnings rose by 1.8% in the three months until December.
Key Drivers of the Short-term Outlook
- Inflation will fall sharply.
- The Bank Rate is expected to fall to 4.5% by the end of the year.
- The impact of tighter monetary policy is still emerging.
- Tighter fiscal policy is to be expected.
- A limited house price correction.
What to Watch Out For
- The impact of the Israel-Hamas war
- Housing market crash
- Corporate insolvencies
- Consumers spending their pandemic savings
Produced by the Foresight Factory for the IPA Commercial Group
