Oxford Economics has raised its 2024 and 2025 GDP forecasts. Growth of 0.5% is now predicted for 2024, up from 0.4% last month. The revision is largely due to the recent Budget’s cut to National Insurance Contributions (NICs), which should provide a modest but short-term boost to household spending power. The easing of inflationary pressures and a gradual loosening of monetary policy will also contribute to growth. However, it’s important to note that even 0.5% of growth would be weak by historical standards.
Economic Growth
The economy shrank in both the third and fourth quarters of 2023, by 0.1% and 0.3% respectively, meeting the definition of a technical recession. However, OE believes the downturn will be shortlived, pointing to more positive indicators that have emerged since the start of the year. GDP rose by 0.2% month-on-month in January, retail sales have bounced back from lows in December and business surveys point to a rise in investment and sentiment.
Inflation
According to the ONS, the largest downward contributions to monthly change in annual CPI inflation rates came from food, and cafes/restaurants. The largest upward contributions came from housing and household services, and motor fuels. The pace of annual food price hikes has eased recently, falling from a 19.2% peak in March 2023 (the highest in over 45 years) to 5% in February.
Unemployment
According to the ONS’s Labour Force Survey, unemployment was 3.9% in the three months to January, up from 3.8% in the previous three-month period. Of particular note, historically high numbers of people are reporting that they are long-term sick.
Earnings
From November to January, average total earnings grew by 5.6% and regular earnings (excluding bonuses) by 6.1%. After inflation, total earnings rose by 1.4% 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
- Changes to fiscal approach
- Corporate insolvencies
- Consumers spending their pandemic savings
Produced by the Foresight Factory for the IPA Commercial Group
