OE has downgraded its UK GDP growth forecast for 2024 and 2025. The forecast for 2024 has been trimmed slightly, now standing at 1%, down by 0.1 percentage points, while 2025’s forecast has been downgraded to 1.5%, a drop of 0.2 percentage points. The adjustment for 2024 reflects the revised Q2 figure, while the outlook for 2025 has softened due to significant revisions to historical data on household incomes and spending.
Economic growth
As part of its quarterly review of historical data, the ONS has published revised GDP figures. GDP growth for 2022 was revised up by 0.5 percentage points to 4.8%, and by 0.2 percentage points to 0.3% for 2023. However, growth for Q2 2024 was downgraded slightly to 0.5%, down from 0.6%. On a monthly basis, GDP rose by 0.2% in August having been flat in the two previous months, while business surveys suggest underlying activity remains solid. OE estimates the economy grew by 0.3% in Q3, slower than the above trend growth in H1, due to tighter fiscal policies and the lingering effects of past interest rate hikes.
Inflation
According to the ONS, the largest downward contributions came from motor fuels and airfares. Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.2% in the 12 months to September, down from 3.6% in August.
Unemployment
Unemployment was 4% in the three months to August. This has decreased by 0.1 percentage points in the latest three-month quarter. It remains the case that historically high numbers of people across all age groups are reporting that they are long-term sick.
Earnings
From June to August, average weekly regular earnings (excluding bonuses) grew by 4.9% compared to the same period in the previous year (down from 5.4%). Growth was last lower than this in April to June 2022, when it was 4.7%.
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%).
- The impact of tighter monetary policy will continue to emerge.
- Pay growth is likely to outpace inflation.
- The housing market is enjoying a soft landing.
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
