Proactive Investors - KPMG said it expects another year of sluggish economic growth in the UK in 2024 as high interest rates take their toll on households and businesses.
The accountancy firm predicted GDP will rise by 0.5% in 2024, before climbing by 1.5% in 2025.
It pointed out that the impact of higher interest rates is passing only gradually through the economy.
Around 1.5 million fixed-rate mortgages are set to expire in 2024, compared to 1.6 million in 2023 and 1.2 million in 2022, while corporate insolvencies have also increased since the withdrawal of government support, although the rate seems to have peaked recently.
KPMG felt one of the key questions for 2024 is whether firms seek to continue raising prices further in order to repair margins, or cut back on staff if demand is projected to remain weak in some sectors.
“The potential for both scenarios to unfold concurrently could result in a double blow to household real incomes,” it suggested.
KPMG explained that while mortgage rates on new loans have risen by 370 basis points since the end of 2021, reflecting higher policy rates the effective rate on the stock of mortgages has only increased by around 120 basis points.
This is because a large share of mortgages with repayments fixed up to five years has been insulated from the immediate impact of higher rates.
KPMG estimated the effective rate on mortgage stock is expected to peak at around 4.4% in late-2025.
“This implies that around a half of the direct impact of monetary policy on mortgage holders is still to come, which would put downward pressure on housing activity and consumption,” it said.
On monetary policy, KPMG said it expects the Bank of England to only normalize policy as soon as it is confident that inflation is firmly on target in the medium term, which is unlikely to happen before the latter part of 2024.