Latest forecasts reveal a sluggish outlook for the United Kingdom’s economic growth, with the Organisation of Economic Co-operation and Development (OECD) expecting GDP growth to remain slow in 2024 at 0.4 percent before improving to 1 percent in 2025.
In its latest economic outlook report, the OECD cut its U.K. growth forecasts for 2024 to 0.4 percent from 0.7 percent in February. For 2025, too, it cut its forecast, expecting growth to recover to just 1 percent from the previous forecast of 1.2 percent. This places the U.K. at the bottom of the Group of Seven countries this year and the next.
Rising inflation concerns
The OECD expects the U.K. headline inflation to continue moderating towards its target as energy and food prices have eased substantially. However, it noted that persistent service price pressures will keep core inflation high at 3.3 percent in 2024 and 2.5 percent in 2025. This spells further economic challenges for British households already facing cost-of-living pressures.
“Stronger real wage growth will support a modest pick-up in private consumption,” the report noted. However, it forecasts unemployment to steadily increase to 4.7 percent by 2025 as the labor market cools. Hence, uncertainty about the degree of slack in the labor market is a key risk to the U.K.’s outlook.
The U.K government deficit will improve from 4.6 percent of GDP in 2024 to 3.5 percent of GDP in 2025. The OECD attributes this growth to constant consolidation. However, it expects public debt to remain above 100 percent of GDP in 2025.
Read: Eurozone economy expands 0.3 percent in Q1 2024, inflation to remain stable at 2.4 percent
The U.K.’s outlook and monetary policy
The OECD reveals that substantial growth in real wages will buoy the U.K.’s economic activity in the first half of 2024, offsetting the lingering negative effects from the downturn in output during the latter part of 2023. Moreover, continuous monetary easing will further stimulate private spending, with households gradually increasing investment as mortgage lending picks up. Nevertheless, challenges persist, including stubborn inflation in service prices, fiscal constraints impacting consumer purchasing power, sluggish international demand affecting trade, and uncertainty in policy deterring business investments.
Prioritizing fiscal consolidation to rebuild financial reserves is imperative for the U.K.’s growth, given the limited fiscal leeway available, the OECD report stated. This necessitates meticulous planning and transparent strategies for allocating fiscal resources across departments in line with comprehensive spending reviews.
For more news on the economy, click here.
