Oxford Economics (OE) now expects the economy to grow by 1.1% in 2024, up from 0.9% forecast in June. These forecasts assume that the new government will start to change policy as set out in its manifesto, but OE believes there is potential upside if the government can move swiftly in areas including planning reform. Consumers are expected to lead the recovery in the next two years, buoyed by improving real household incomes as the rate of inflation falls.
Economic Growth
GDP rose by a stronger-than-anticipated 0.7% in Q1 2024. This positive start to the year was driven by growth in the services and production sectors and strong household spending boosted by the earlier-than-usual Easter. With spending brought forward, however, output in consumer-facing sectors shrank in April, contributing to flat monthly GDP growth overall. The latest business survey data suggests there is continued momentum in the economy, though strikes by junior doctors in June likely exerted a drag on activity. OE expects a more moderate quarterly growth figure of 0.6% in Q2.
Inflation
According to the ONS, the largest upward contribution to the monthly change in inflation came from hospitality, while the largest downward contribution came from clothing. Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.5% in the 12 months to June 2024, the same as in May.
Unemployment
According to the ONS’s Labour Force Survey, employment growth has slowed over the last 12 months, while the proportion of people economically inactive has increased. Of particular note, historically high numbers of people across all age groups are reporting that they are long-term sick.
Earnings
From March to May, average total earnings grew by 5.7% and regular earnings (excluding bonuses) also by 5.7%. After inflation, total earnings rose by 2.2% in the three months to May.
Key Drivers of the Short-term Outlook
- Inflation is unlikely to fall much further.
- The Bank Rate will end the year at 4.75%.
- The impact of tighter monetary policy will continue to emerge.
- Fiscal policy will tighten.
- House prices will fall only slightly, despite being significantly overvalued.
What to Watch Out For
- Consumers spending their pandemic savings
- Changes to fiscal approach
- Rising corporate insolvencies
Produced by the Foresight Factory for the IPA Commercial Group
