UK economy set for rebound in 2024-25: EY forecast

The forecast has revised the gross domestic product (GDP) expectations for 2024 upwards from 0.7 per cent, as stated in October's autumn forecast, to 0.9 per cent. Additionally, the UK economy is now forecast to grow by 1.8 per cent in 2025, an increase from the previously predicted 1.7 per cent. However, the UK GDP growth was just 0.3 per cent last year, a downward revision from the 0.6 per cent predicted in the autumn forecast, as per EY Item Club.

A key factor contributing to the improved economic outlook is the anticipated reduction in inflation. The winter forecast projects that the consumer price index (CPI) inflation will align with the Bank of England's 2 per cent target by May and average at 2.4 per cent throughout 2024, which is lower than the 2.9 per cent previously forecast.

In terms of monetary policy, the EY Item Club expects more significant cuts in the bank rate in 2024, forecasting a reduction of 100-125 basis points, up from the 100 basis points projected in the Autumn Forecast. The report suggests that these rate cuts could commence as early as May 2024.

The forecast also anticipates that the unemployment rate will peak at 4.7 per cent, with improving economic sentiment and a flexible labour market helping to contain job losses. Consumer spending growth is expected to rise to 0.9 per cent in 2024, an increase from the previously projected 0.7 per cent.

On the business investment front, the introduction of permanent full expensing relief is expected to initially reduce investment levels as companies no longer need to accelerate investments for temporary relief. However, this policy is predicted to boost investment in the medium term. High interest rates may limit activity in the short term, but anticipated rate reductions should reinvigorate business investment. Additionally, the growing importance of technology, such as artificial intelligence (AI) and green energy generation, is poised to be a key driver of UK business investment.

Despite a projected 0.5 per cent decline in business investment following the autumn forecast, it is now expected to contract by nearly 1 per cent in 2024. Nevertheless, this contraction is anticipated to be followed by encouraging growth of 3.2 per cent in 2025 and similar growth in 2026, signalling a robust recovery in the UK's economic prospects.Top of Form

“Although it remains possible that the UK may have slipped into a technical recession in Q4 2023, the mood music around the economy is justifiably improving. High inflation and expensive borrowing costs have been two of the biggest obstacles to growth recently and, with both showing encouraging signs of subsiding, prospects for late 2024 and beyond appear brighter,” said Martin Beck, chief economic advisor to the EY Item Club.

Fibre2Fashion News Desk (DP)