OE has again downgraded its UK GDP growth forecast for 2024 and 2025. The forecast for 2024 has been trimmed slightly, now standing at 0.9%, down by 0.1 percentage points, while 2025’s forecast has been downgraded to 1.4%, a drop of 0.1 percentage points. The adjustment for 2024 reflects the weak 0.1% growth figure for Q3, while the outlook for 2025 has softened due to the “carry-over effects” of the weaker end to 2024.
Economic growth
UK GDP shrank by 0.1% in September, leaving quarterly growth in Q3 at just 0.1% – a drop from the strong start to the year and quarterly growth of 0.6% in Q2. OE believes some of this slowdown may be overstated due to volatile data, with business surveys suggesting the economy is growing at a steadier trend of around 0.3%-0.4% per quarter. However, softer-than-expected figures for late 2024 have prompted OE to revise its 2024 GDP growth forecast down to 0.9% (from 1% last month).
Inflation
The largest upward contribution came from housing and household services, mainly because of electricity and gas prices. Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.3% in the 12 months to October, up from 3.2% in September.
Unemployment
Unemployment was 4.3% in the three months to September, up from 4.1% in the previous three-month quarter. The estimated number of vacancies in the UK decreased in the three months to October, by 35,000 on the quarter to 831,000. This marked the 28th consecutive decline, but number of vacancies is still higher than pre-pandemic levels.
Earnings
From July to September, average weekly regular earnings (excluding bonuses) grew by 4.8% compared to the same period in the previous year (down from 4.9%). Total earnings (including bonuses) saw an annual growth rate of 4.3% (up from 3.8%).
Key drivers of the short-term outlook
- Fiscal policy is tightening.
- The Bank Rate will end the year at 4.75% (and 2025 at 3.75%).
- Government spending will rise in 2025-26.
- Higher employer taxes will slow job and pay growth.
- Borrowers will face higher costs despite falling rates.
What to watch out for
- US tariff increases.
- Faster interest rate cuts.
- Further fiscal tightening.
- Planning reforms.
Produced by the Foresight Factory for the IPA Commercial Group
