A key forecasting group has more than halved its forecast for UK economic growth in 2024 because of sticky inflation and interest rates.

The EY Item Club now expects the economy to grow at just 0.8% from its earlier prediction of 1.9%. The 2025 GDP growth forecast has also been downgraded to 1.7% from 2.3%

This is despite upgrading growth this year to 0.4%, up from the 0.2% growth forecast in April as the economy remains on course to avoid recession.

The EY ITEM Club expects two further interest rate rises from the Bank of England, 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 this year, 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 chairman, 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.

“There are bright spots though. While the UK workforce may be smaller than past trends would imply, it has grown back to its pre-pandemic size. 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.”