INSIGHTS ¦ UK economy’s growth to accelerate in 2025 as barriers fall, says EY



The EY ITEM Club’s Spring 2024 Forecast revisits the UK’s economic conditions, focusing on the recent technical recession and the prospects for recovery. The report underscores the resilience of the UK economy despite several macroeconomic challenges and suggests a modest recovery trajectory over the coming years.

Key Points

  1. The UK economy met the technical definition of a recession in the latter half of 2023, but signs of economic stagnation have been present since early 2022.
  2. Despite the recession, the labour market remained robust, with unemployment rates low and consumer confidence improving.
  3. For 2024, the EY ITEM Club has revised the UK’s GDP growth forecast slightly downward to 0.7% due to a weaker starting point in early 2024.
  4. Inflation is expected to fall below 2% by April 2024, largely due to reductions in household energy bills.
  5. Three interest rate cuts are anticipated in 2024, starting in June, to facilitate economic recovery.
  6. Consumer spending is expected to recover, driven by tax cuts and a cooling yet steady labour market.
  7. Business investment is projected to continue growing, supported by lower inflation and interest rates.
  8. Risks to economic stability include potential higher interest rates impacting spending, ongoing geopolitical tensions, and high economic inactivity.
  9. The UK’s major export markets are showing signs of recovery, which could influence domestic economic conditions.
  10. The possibility of a change in government in the next general election could introduce new economic policies but is unlikely to drastically alter the economic forecast.
  11. The EY ITEM Club utilizes the HM Treasury model, ensuring an independent and non-biased economic forecast.
  12. Continued growth is forecasted for 2025 and 2026, with GDP expected to increase by around 2% annually.
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Key Statistics

  • GDP contraction of 0.4% across Q3 and Q4 of 2023.
  • Predicted GDP growth of 0.7% in 2024, accelerating to 2% in the following years.
  • Inflation expected to dip below 2% in April 2024.
  • Anticipation of three interest rate cuts in 2024.
  • The unemployment rate remains low, barely shifting despite economic downturns.

Key Takeaways

  • The term ‘recession’ might be misleading for the UK as the economic decline was very marginal and the labour market remains strong.
  • Lower inflation and interest rates are key to supporting the UK’s economic recovery in 2024.
  • Consumer spending will be boosted by significant tax cuts and continued employment stability.
  • Business investment is expected to increase, benefitting from a favourable economic environment and lower costs of capital.
  • The UK economy is showing resilience, with growth expected to stabilize and build momentum through 2025 and 2026.
  • External factors such as geopolitical tensions and global economic conditions continue to pose risks to the UK’s economic outlook.
  • The potential change in government could lead to new economic policies but is not expected to significantly derail the current economic trajectory.
  • Despite the positive outlook, businesses and consumers are advised to remain cautious and agile, ready to adapt to potential economic shifts.
  • The EY ITEM Club’s forecasts are independent, leveraging a government model but without governmental or political bias.
  • As the UK navigates potential economic hurdles, the strategic management of inflation, interest rates, and tax policies will be crucial.
  • The upcoming general election and its outcomes could influence economic strategies and fiscal policies.
  • Maintaining a focus on reducing economic inactivity and addressing long-term unemployment should be prioritized to bolster economic strength.

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