Oxford Economics has raised its 2024 GDP forecast to 0.6% (up from 0.5% in December) reflecting the anticipation of a quicker-than-expected drop in inflation due to falling energy prices and weaker services inflation. According to the UK Treasury’s January 2024 survey of independent forecasts, the average forecast for 2023 is 0.4% (down from 0.5% in December) and remains at 0.4% for 2024.
Economic Growth
The ONS has adjusted its estimates for Q2 and Q3 2023 growth downward. Combined with Q4 data suggesting relatively flat growth, OE has halved its GDP growth estimate for 2023 from 0.6% to 0.3%. The “carry-over effect” of historical revisions also influences the 2024 forecast.
Inflation
According to the ONS, the largest upward contributions to the monthly change in annual CPI inflation rates came from alcohol and tobacco while the largest downward contribution came from 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 8% in December. Nonetheless, food prices in December were still 26% higher than in December 2021.
Unemployment
According to experimental ONS data, the labour market picture did not change between September to November, with the unemployment rate unchanged at 4.2%.
Earnings
From September to November, average total earnings grew by 6.5% and regular earnings by 6.6%; real earnings increased by 1.3% to 1.4% after inflation.
Key Drivers of the Short-term Outlook
- Inflation will fall sharply.
- The Bank Rate is expected to fall to 4.25% 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
