Proactive Investors - The EY ITEM Club has more than halved its forecast for UK economic growth in 2024 despite raising expectations for the current year.
The economic thinktank now expects UK GDP to rise by 0.8% next year compared to 1.9% growth it previously forecast.
The EY ITEM Club made the prediction in its Summer forecast and cited higher-for-longer interest rates and stickier inflation as the reasons behind the less optimistic view of economic prospects.
More positively, the economy’s resilience so far this year led to an upgraded forecast for 2023, with the economy now expected to grow 0.4%, up from the 0.2% growth forecast in April.
Two further interest rate rises from the Bank of England are expected, in August and September, with Bank Rate forecast to peak at 5.5%, before rates start to be cut from the second half of next year.
Inflation is still forecast to fall quickly in the second half of 2023, building on June’s downside surprise, but is now predicted to end the year at just below 5% – in April, it had been expected to end 2023 around 3%.
Hywel Ball, EY UK Chair, says: “The economy is moving past the series of shocks which have buffeted it in recent years, but their repercussions are long-lasting and holding back UK growth.”
“Inflation remains high, energy bills are a long way from their pre-pandemic levels, and workforce growth has been slow in recent years, partly due to falling inward migration from the EU and a recent uptick in long-term ill health.”
But there were some bright spots. “Energy costs are falling and supply chain problems are easing.”
“Business investment, which has been disappointing for some time, is starting to outpace the wider economy too.”
“The foundation for growth is there, but the big question mark is the future path of inflation and interest rates.”