While OE’s 2024 growth forecast remains unchanged, its 2025 projection has been downgraded. OE's 2024 GDP growth forecast remains at 1.1%, but the 2025 projection has been downgraded to 1.7% from 1.8%. This reflects the expectation of higher inflation in early 2025. Despite the slight downgrade, 2025 is set to see stronger economic performance, largely driven by consumer spending. However, uncertainties remain around fiscal policy, the lagged impact of interest rate rises and energy prices.
Economic growth
Monthly GDP growth remained flat in July, but the economy is expected to grow in Q3 2024. However, some sectors performed better than others, and temporary setbacks have affected certain areas. For instance, the health sector recovered in July as industrial action abated, and retail sales returned to growth in July after falls in June. Recent business surveys suggest that underlying growth activity remains solid, and OE expects the economy to grow in Q3 (by 0.3%).
Inflation
According to the ONS, the largest upward contribution to the monthly change in inflation came from air fares, which rose this year but fell last year. Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.6% in the 12 months to August, up from 3.3% in July.
Unemployment
According to the ONS’s Labour Force Survey, the employment rate increased in the latest quarter (to 74.8%) but remains below pre-pandemic levels (76.2% in the three months to February 2020). It remains the case that historically high numbers of people across all ages are reporting as long-term sick.
Earnings
From May to July, average total earnings grew by 4% and regular earnings (excluding bonuses) grew by 5.1%. After inflation, total earnings rose by 2.2% in the three months to July.
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
