The U.K. economy has shown signs of improvement in the first half of 2024, with GDP growth picking up and consumer outlook improving. Despite this positive trend, concerns about inflation linger as wage growth remains elevated. The Bank of England is expected to proceed cautiously with monetary easing, with two 25 bps rate cuts predicted for this year.
Looking ahead, U.K. GDP growth is forecasted to firm to 0.8% in 2024 and 1.5% in 2025, a significant improvement from the 0.1% growth seen in 2023. The Bank of England is expected to lower its policy rate to 4.75% by the end of 2024, with further rate cuts anticipated in 2025 to bring the policy rate down to 3.50%.
In addition to economic developments, the U.K. recently saw a landslide victory for the Labour Party led by new Prime Minister Keir Starmer. Despite this political change, the immediate impact on the economy and financial markets is expected to be limited. The new government’s cautious approach to fiscal policy could potentially impact the growth outlook in 2025 if it leads to unexpected tax increases or spending discipline.
Overall, the U.K. economy is showing signs of improvement, but challenges remain, particularly in managing inflation and navigating political changes. The Bank of England’s approach to monetary policy and the new government’s fiscal decisions will play a crucial role in shaping the economic outlook for the coming years.
