EY ITEM Club Forecasts UK Economic Revival in 2024 Outlook.

23 Jan, 2024

The latest EY ITEM Club Winter Forecast presents an optimistic outlook for the UK economy in 2024. Projections indicate a growth rate of 0.9%, surpassing the previous estimate of 0.7% from the Autumn Forecast.

Additionally, the forecast for GDP growth in 2025 has been upgraded from 1.7% to 1.8%. Despite a downward revision for 2023 growth, falling from the anticipated 0.6% to 0.3%, signs of economic recovery are evident.Inflation is anticipated to decline faster than initially expected, reaching the Bank of England's 2% target by May and averaging 2.4% throughout 2024. Forecasts also suggest a substantial reduction in the Bank Rate, with expectations of 100-125 basis points in rate cuts during the year. The EY ITEM Club's Winter Forecast signals a potential end to the prolonged economic stagnation in the UK, fueled by decreasing inflation, possible interest rate cuts, and tax reductions.

The improved inflation outlook is expected to pave the way for a more significant reduction in the Bank Rate in 2024, with 100-125 basis points of cuts projected.

Despite ongoing challenges, including the lingering impact of interest rate hikes, the forecast hints at a turning point in 2024, with the UK poised to enter a more positive phase of growth.The Winter Forecast also brings positive news for homeowners, with house prices predicted to stabilize in 2024, contrary to the 4% fall forecasted in the Autumn Forecast. Consumer spending growth is expected to rise to 0.9% in 2024, driven by increasing nominal household incomes outpacing inflation and lower energy prices alleviating cost-of-living pressures.

However, challenges persist, with potential risks stemming from geopolitical tensions affecting energy prices and uncertainty surrounding the timing and extent of interest rate cuts. The first half of 2024 will play a crucial role in determining the UK's prospects for returning to growth over the medium to long term.In terms of business investment, the Winter Forecast indicates a short-term decline due to the introduction of permanent full expensing relief. Although interest rates may limit activity initially, expected rate reductions in 2024 should rejuvenate business investment in the medium term. Technology, particularly Artificial Intelligence (AI) and green energy generation, is anticipated to play a pivotal role in driving future business investments.

The EY ITEM Club's Winter Forecast underscores the challenges faced by businesses in the short term but paints a more promising picture for the longer-term economic outlook, with a focus on technological advancements and supportive policies driving growth.

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