UK GDP forecast

UK economy emerging from stagnation

The UK economy staged an early recovery from a technical recession in the second half of 2023, with real GDP growth expected to be 0.3% in 2024, and to accelerate to 0.9% in 2025. We expect improving incomes to bolster consumer spending, while investment should also benefit from easing credit conditions. The longer-term outlook is for growth of just 1% this decade.

UK inflation forecast

Inflation back to 2% target in the first half of 2024

The outlook for inflation is broadly positive, supported by favourable developments in food and energy prices. We expect inflation to return to its 2% target in the first half of 2024. There are risks to the outlook though. Disruptions in the Red Sea and relatively strong wage growth could see inflation stay higher for longer.

UK interest rate forecast

Interest rates down to 3% by the second half of 2024

Weakening inflationary pressure should put the Bank of England in a position to begin cutting interest rates this summer. We expect interest rates to fall by 100 basis points this year and to settle at 3% in the second half of 2025.

UK labour market data

Unemployment rising at moderate rate

The labour market is softening, with employers hesitant to commit to new hires. We expect the unemployment rate to drift upwards from 4% in 2023 to 4.2% in 2024 and 4.5% in 2025. But rising inactivity and a smaller working-age population could keep a lid on labour supply.

Nominal pay growth is set to moderate further. But it will remain well above inflation, improving household purchasing power.

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