Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

UK economic growth forecasts downgraded for next two years – economists

EY Item Club’s latest quarterly economic forecast points towards 0.9% growth in 2024.

Henry Saker-Clark
Wednesday 23 October 2024 19:01 EDT
The UK economy is set to grow slower than previously expected over the next two years amid cautious consumer spending, according to new forecasts by economists (Yui Mok/PA)
The UK economy is set to grow slower than previously expected over the next two years amid cautious consumer spending, according to new forecasts by economists (Yui Mok/PA) (PA Archive)

Your support helps us to tell the story

From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.

At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.

The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.

Your support makes all the difference.

The UK economy is set to grow slower than previously expected over the next two years amid cautious consumer spending, according to new forecasts by economists.

EY Item Club’s latest quarterly economic forecast also suggested that caution by Bank of England rate-setters not to cut interest rates too quickly will contribute to “steady rather than rapid” growth.

It represents a potential blow to Chancellor Rachel Reeves days ahead of the autumn Budget, with the Government hoping that future economic growth can help generate more funds to support spending plans.

Lower household savings has reduced the scope of potential consumer spending and sticky inflation means that interest rate cuts are set to occur at a gradual pace

Matt Swannell, EY Item Club

The organisation’s autumn forecast predicts that UK gross domestic product will increase by 0.9% in 2024. It had previously predicted in July that the UK would record 1.1% growth for the year.

Earlier this week, the International Monetary Fund (IMF) pointed towards 1.1% growth in the UK in an improved set of predictions.

The UK economy grew by 0.7% and 0.5% in the first two quarters of 2024, according to the Office for National Statistics.

However, it could witness slower growth in the latest quarter after no growth in July and a 0.2% rise in August, as spending was dented by continued pressure on household budgets and damp summer weather.

EY also downgraded its guidance for next year, predicting that growth will improve to 1.5% in 2025, down from a 2% forecast made in July.

It said the downgrades are largely linked to household savings, which are weaker than initially thought three months ago and causing consumers to restrict some spending habits.

Matt Swannell, chief economic advisor to the EY Item Club, said: “Following last year’s technical recession, a strong start to 2024 helped establish the UK’s recovery and a return to steady growth is forecast for next year.

“However, lower household savings has reduced the scope of potential consumer spending and sticky inflation means that interest rate cuts are set to occur at a gradual pace.

“This means that growth in 2025 won’t be as robust as it could have been.”

The forecast said it expects UK interest rates – which currently sit at 5% – to drop to 3.5% by the end of 2025.

Mr Swannell said cuts to interest rates should provide “a shot in the arm for the private sector and a pickup in business investment”.

As a result, it projected a 1.3% rise in UK business investment this year, up from a previous estimate of 1%.

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in