GDP uplift

Obstacles to growth ‘falling away’ says Item Club

high street shopping at Easter
Consumer spending is expected to pick up (pic: Terry Murden)

Growth is expected to accelerate next year as falling inflation, interest rates and costs encourage higher consumer spending, according to a key forecast.

The EY Item Club has downgraded UK GDP this year from 0.9% to 0.7% as a lagging effect of last year’s short recession, but expects expects growth of 2% in 2025, up from 1.8% in January’s Winter Forecast. 

However, despite an improving inflationary outlook, the EY ITEM Club now expects fewer interest rate cuts and predicts base rate to end 2024 at 4.5% from 5.25% currently.

This 75 basis points reduction compared with the 125bps of cuts predicted in January’s Winter Forecast and follows the Monetary Policy Committee’s messaging that rates may need to stay high for longer.

The EY ITEM Club still anticipates that the first rate cut will come in June, amid expectations of a period of below-target inflation.

Hywel Ball, EY UK chair, said: “Although growth in 2024 is forecast to remain subdued, we still expect this year to mark a turning point for the UK economy and provide a launchpad for a far brighter 2025.

“High inflation, energy prices and interest rates have mired the UK in economic stagnation in recent years but all three obstacles to growth have now either fallen away already or are expected to diminish in 2024. 

“Business investment is predicted to see modest growth this year before accelerating in 2025. Rising business confidence and spending, alongside improved economic conditions, should set the stage for a welcome return to growth in the near future.”

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