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Economists have raised their GDP growth forecasts for this year and next in a further show of confidence in Britain’s economic outlook.
The new Treasury figures show forecasters expect economic growth to hit 1.1 percent for 2024, up from 0.9 percent last month, while forecasters for 2025 were upgraded to 1.4 percent from 1.3 percent, on average.
This follows a better-than-expected first half, with GDP performing above forecasts and inflation moderating towards the Bank of England’s 2 percent target, and ahead of anticipated interest rate cuts.
Treasury figures show City analysts upgraded forecasts for UK growth in August
However, demonstrating the level of uncertainty facing the UK economy, the City’s forecasts for GDP growth in 2024 vary.
Capital Economics and Pantheon were the most optimistic of the seven City firms that updated their forecasts this month, each predicting growth of 1.2 per cent.
Among non-City firms that updated their data in August, Beacon Economic Forecasting is the most positive, forecasting 1.4 per cent growth for the year.
How city and other analysts expect the UK economy as a whole to perform in 2024. *Recently updated
The forecasts are a far cry from the IMF’s January prediction of UK growth of 0.6 per cent by 2024 and the OECD’s May forecast of 0.4 per cent.
UBS is the least confident of the City firms in its August updates, forecasting 0.7 per cent growth for 2024, while the British Chambers of Commerce also expects just 0.8 per cent.
UBS economist Samuel Adams said in a note Tuesday that U.K. GDP growth of 0.7 percent and 0.6 percent in the first and second quarters of the year, respectively, “looks like an economy that is recovering from its recession at the end of last year.”
However, he warned, “this impression can be misleading.”
‘Much of the growth has come from the public sector, which is not surprising given the easing of strikes in that sector.
‘In fact, if we step back for a moment, government spending is one of the few parts of the economy that has grown significantly in real terms since the pandemic.
“Consumers are barely recovering from losses in their standard of living and household spending remains subdued. If anything, this sounds more like an economy that is recovering, not a boom.”
The Treasury figures also show that independent forecasters now think inflation will average 2.5 percent in the final quarter of 2024, up from an average prediction of 2.4 percent in July.
The data show that consumer price inflation accelerated again to 2.2 percent despite positive signs of slowing price growth for both goods and services.
Isabel Albarran, chief investment officer at Close Brothers Asset Management, warned that this could lead to a difficult first budget for Chancellor Rachel Reeves, which could put the brakes on the British economy.
She said: “Resilient UK activity is likely to mean the Bank of England cuts interest rates only modestly, although the October budget and public spending review may herald tax increases, which could increase the fiscal burden on the economy.”
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