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Experts predict the UK economy will avoid recession

Experts predict the UK economy will avoid recession
Nick Cheek
Written By:
Nick Cheek
Posted:
26/01/2024
Updated:
26/01/2024

The latest figures show that the UK economy will avoid recession as the private sector is expanding, inflation is falling and interest rate cuts could be on the way.

The combination of these factors mean the UK economy could avoid a recession in 2024. This is despite the risk of trade disruption in the Red Sea due to the Hamas attacks.

Analysts at the EY ITEM Club expect the UK economy to grow 0.9 per cent in 2024, up from the 0.7 per cent growth projected in October’s Autumn forecast.

High inflation and expensive borrowing costs have been two of the biggest obstacles to growth and, with both showing encouraging signs of subsiding, prospects for late 2024 and beyond appear brighter.

The EY ITEM Club’s GDP growth expectations for 2025 have been upgraded from 1.7 per cent to 1.8 per cent, although 2023 growth predictions have been downgraded from 0.6 per cent to 0.3 per cent.

Inflation is expected to fall faster than expected, reaching the Bank of England’s two per cent target in May and averaging 2.4 per cent in 2024. The base rate is also expected to fall significantly in 2024, with 100-125 basis points of rate cuts predicted to be made this year.

Hywel Ball, EY UK chair, said: “While challenges remain, the forecast suggests that the UK’s period of economic stagnation is slowly coming to an end.

“Households and businesses are still facing a tough outlook in 2024, due in part to the lagged effect of interest rate rises, but slowing inflation and anticipated bank rate cuts should help build economic momentum as the year progresses.”

More positive news for UK economy

Other positive data comes from the latest “flash” composite purchasing managers’ index from S&P Global and the Chartered Institute of Procurement and Supply. The index has risen to 52.5 in January from 52.1 in the previous month, beating City analysts’ expectations.

The figures show that the index has been above the 50-point threshold that separates growth from contraction for three months in a row.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Business activity and confidence are being driven in part by hopes of faster economic growth in 2024, in turn linked to the prospect of falling inflation and commensurately lower interest rates.”

Jeremy Hunt is also expected to lower taxes in the next budget on 6 March, further stimulating demand. Meanwhile, most expects are still expecting a base rate cut in the coming months despite the rise in inflation in December

Gabriella Dickens, at Pantheon Macroeconomics, said: “The PMI data remains consistent with the Monetary Policy Committee being able to cut interest rates this year, but at a more gradual pace than investors currently expect. We still look for a 75-basis-point reduction in the bank rate this year, slightly less than the 100 basis points implied by OIS [overnight index swap] rates.”