The UK economy is limping along while high interest rates and policy uncertainty take their toll on global growth, according to an update from KPMG.
KPMG noted that activity has outperformed expectations, but the UK economy “remains weak and vulnerable to shocks.”
Here are some other key points shared by KPMG:
- Activity has outperformed expectations, but the UK economy remains weak and vulnerable to shocks.
- Risks to the UK outlook are skewed to the downside, and stem from a more persistent inflation, delayed impact of monetary policy, and structural weakness of labour supply.
- Deceleration in growth in some of the world’s largest economies, coupled with little impetus elsewhere, could see global GDP growth easing slightly in 2024.
- Weaker momentum should help push down inflation, with average world inflation expected to halve by 2025.
The update from KPMG also mentioned that the UK economy has “performed better than expected this year, but the outlook remains weak and vulnerable to shocks. UK GDP is expected to continue to grow at a modest pace of 0.5% this year and next, and only pick up to 1.0% in 2025, according to the latest KPMG Global Economic Outlook.”
Despite the peak in inflation being behind us, “a large part of the impact from higher interest rates on mortgage holders is still to come, which will put downward pressure on housing activity and consumption, and will continue to depress growth.”
The KPMG report added that headline CPI inflation dropped “to 4.6% in October on the back of lower energy prices, which means that the UK is no longer an outlier when compared to other major economies.”
However, domestic influences continue “to keep core inflation elevated, including tightness in the labor market, strong services price inflation, and firms passing on higher costs onto consumers.”
Yael Selfin, Chief Economist at KPMG UK, commented on the report:
“While the UK economy is resilient, it needs to get its mojo back. We expect monetary and fiscal policies to act as a headwind to growth over the next two years, and a sudden revival in productivity is not likely to come to the rescue. This means that even the expected continuation of positive growth should not be celebrated prematurely, as the outlook is dominated by downside risks.”
Global growth outlook
A significant uplift in global growth is “unlikely in 2024 with no short-term end in sight to geopolitical uncertainty and tight monetary policies,” according to the latest forecast from KPMG.
With global trade plateauing in recent years, “driven in part by the pandemic, geopolitical tensions and rising protectionist measures, the report warns of potentially large output losses from geoeconomic fragmentation over the longer term.”
KPMG forecasts global GDP growth “of 2.2% in 2024 – down from 2.6% in 2023, with a return to 2.6% growth anticipated in 2025.”
Weaker economic momentum has “helped ease supply chain pressures and reduce broader cost pressures, with energy prices dropping significantly from their 2022 peak when Russia invaded Ukraine. Median CPI inflation for the G20 countries fell to 3.9% in October 2023 after peaking at 7.7% in July 2022, and further deceleration is expected in coming months.”
The report sees world inflation “averaging 5.0% in 2024 and 3.9% in 2025, down from an estimated 6.5% in 2023 and 8.0% in 2022. Risks are on the upside, however, as any further shocks to energy prices – or a more persistent domestic inflation in some countries – could derail the relatively smooth return to central banks’ inflation targets next year.”