UK Economy Reportedly Exhibiting Tentative Signs of Renewed Momentum with Growth of 0.5% Expected in 2024

Following a technical recession in the second half of 2023, the UK economy has shown tentative signs of renewed momentum, “with growth of 0.5% expected this year, and 0.9% in 2025,” according to the latest KPMG Global Economic Outlook.

The report finds a number of reasons for “optimism.”

Consumption has been supported “by the cuts to National Insurance Contributions, which are expected to boost real household disposable income by 1%.”

Against this backdrop, consumer confidence “is gradually recovering, consistent with continued tightness in the labor market and further falls in inflation.”

Further improvements in underlying inflationary pressures “will favor a gradual withdrawal of monetary policy restrictiveness in the coming months, and Bank Rate is forecast to fall towards 3% by the second half of 2025.”

According to the outlook, the fiscal reality is similar “for whichever party wins the general election on 4 July.”

Interest rates are set to “remain higher, debt more difficult to bring down, and spending pressures on health and defence continue to mount.”

With relatively subtle differences in the stated plans “for fiscal rules and taxation so far, borrowing will likely follow a similar path under either government.”

Yael Selfin, Chief Economist at KPMG UK, commented on the report:

“While households have benefitted from a pickup in real earnings and a relatively stable labour market, business investment could also return as an engine of growth. Political uncertainty will now resolve sooner with a summer election and a potential fiscal event in the autumn, setting out the new government’s economic agenda. This could be aided by gradual cuts in interest rates, which look likely despite a small rise in inflation above its target expected later this year. To stay ahead, successful businesses will have to aptly navigate this evolving economic landscape.”

KPMG is forecasting global growth to “slow from 2.7% 2023 pace to 2.5% in 2024 and rebound to 2.7% next year. Meanwhile, inflation is expected to continue to cool, but price pressures will take longer to unwind than they took to emerge.”

The latest predictions also reflect “the current elevated geopolitical uncertainty, with nearly half of the world’s population already voting or heading to the polls this year. Armed conflict and trade tensions are flaring in numerous parts of the world, which could fuel more isolationist policies.”

The resulting risk could be “more frequent bouts of inflation and the possibility of sharper shifts in monetary policies.”

A slower expected glide path on rate cuts “by the U.S. Federal Reserve, which plays an outsized role in global financial markets, will have a larger impact on rate decisions by developing economies.”

These markets are more sensitive “to exchange rate movements than have been seen in the past. Weakening currencies relative to the U.S. dollar are inflationary for those economies.”

To further complicate matters, foreign exchange markets “have also been reacting to unexpected election outcomes.”

Despite uncertainty deepening this year, KPMG’s economists “remain cautiously optimistic about the outlook.”

Yael Selfin concludes:

“Global economic prospects are better for 2025, with inflation expected to return towards target and central banks more confident to cut policy rates from the current restrictive levels. The silver lining is a tailwind for big-ticket consumer purchases and business investment. Merger and acquisition activity could also continue to gather steam, as financial conditions ease and dry powder is deployed. However, the uncertainty remains around the political shifts, which could see more insular and protectionist economic policies.”

Sponsored Links by DQ Promote



Send this to a friend