UK economic growth will continue to be “anaemic” ahead of the general election, according to leading economists who called on the government to boost investment to revive the country’s economic prospects.
Among nearly 100 economists who responded to the annual Financial Times questionnaire, the prevailing view was that living standards would improve in 2024 for pensioners, homeowners and low-paid employees, who are set to benefit from a big increase in the minimum wage.
However, standards would deteriorate for households with mortgages and those on benefits as mortgage rates remain high and state support for living costs will be cut.
Economists expected inflation to continue falling and the economy to remain largely stagnant as more businesses and households refinance their debts at higher rates. While many mentioned rejoining the EU and relaxing planning restrictions as ways to boost the country’s long-term prospects, increasing public and private investment remained the priority for most.
Below are the full responses to questions about the economic outlook for 2024.
Will voters feel better or worse about their living standards in the run-up to the election?
Alexandrovich Marchel and David Owen, Saltmarsh Economics: The aggregate picture will look better, in terms of a stronger economy, pre-election tax cuts, real wage growth, new company formation and lower inflation. However, the aggregate picture will disguise a lot of divergence, and economic hardship. Much still needs to be repriced in a world of a 5.25 per cent bank rate.
Kate Barker, trustee chair at USS: Better than 2023, absent an energy price shock. But those with mortgages and on benefits will feel very squeezed. And the savings cushion built in Covid may be further depleted.
Nicholas Barr, professor of public economics at the London School of Economics: Worse — growth in the months preceding the election will not make up for the decline in living standards over the preceding years. Note that the decline is not only in real per capita income, but also in non-pecuniary terms, including disquiet resulting from Brexit and the pandemic.
Ray Barrell, honorary and emeritus professor of economics and finance, Brunel University and honorary fellow, National Institute of Economics and Social Research: Living standards will almost certainly decline over the next year, and voters will notice. They will feel worse off.
Sir Charles Bean, professor of economics LSE: About the same. Real wages will probably rise a little but for many mortgage holders that will be offset by higher mortgage repayments. And living standards for most will have stagnated over the lifetime of the parliament.
Martin Beck, chief economic adviser at EY ITEM Club: A little better. Inflation should continue to head down this year, as the direct and indirect effects of lower energy prices filter through the economy. With growth in wages likely to slow more gradually than price inflation the recovery in real pay which began in the second half of 2023 should gather momentum, supported in post-tax terms by January’s cut in NICs. But in level terms, the price of things most salient to the average consumer, such as food and gas and electricity bills, will generally remain much higher than only a few years ago. So most households are unlikely to see a return to more normal rates of inflation as delivering much of an improvement in living standards.
David Bell, professor of economics at the University of Stirling: Worse.
Ana Boata, head of economic research at Allianz Trade: We expect nominal wage growth at 8.3 per cent in 2023 followed by 5.4 per cent in 2024. Total real wage growth has been positive since June, and since April in the services sector. The UK fares much better in terms of real purchasing power compared with its peers. As 2024 is a political year, we expect the minimum wage to be raised by at least another 7 per cent after 9.7 per cent this year, against inflation forecasts of 3.5 per cent and 7 per cent respectively, which means an acceleration in terms of real wage growth.
Philip Booth, professor of finance, public policy and ethics at St Mary’s University, Twickenham, London: Better — mortgage rates will fall, some taxes will fall and wages will continue to rise at a faster rate than prices.
Nick Bosanquet, professor at consultancy Aiming for Health Success: Worse . . . they have lost security now and hope for the future. Animal spirits only for Internet searches for lower prices.
Francis Breedon, professor at Queen Mary University London and Scottish Fiscal Commission: As a member of the Scottish Fiscal Commission whose forecasts were recently published alongside the Scottish budget I will focus on Scotland (though the UK picture is very similar). We do not expect Scottish living standards (as measured by real disposable income) to return to their 2021-22 level until 2026-27, so Scottish voters are likely to feel their living standards have worsened for some time yet.
Erik Britton, managing director at Fathom Consulting: The standard of living is likely to remain flat or fall slightly between now and the election, and I expect that will come as an unpleasant surprise for many, so the impact on how people feel will probably be negative. The government could try a big fiscal stimulus in the run-up to the election, but that is not in our central case.
George Buckley, chief UK economist at Nomura: Probably a little worse. It’s true that inflation momentum has slowed. But so too has wage growth, and since 2021 prices have risen by more than pay. On top of that, even if the Bank of England cuts rates next year, more people will still be resetting their mortgages at higher rates than in the past. There are some offsets — including recent tax cuts and what might amount to a third consecutive fiscal boost in the spring. But even that won’t stop the tax take rising to its highest since the second world war.
Jagjit Chadha, director at NIESR: We expect very little improvement in per capita GDP or real personal disposable income in the run-up to the election. The trick here though is to drill down below the average and realise that it masks falls in the bottom of the distribution and some improvement at the top. So some voters will feel better, but alas many will not.
Victoria Clarke, UK chief economist at Santander CIB: Falling inflation will see consumers benefit from positive real pay growth. But consumption will not be buoyed by solid gains in employment as it was early in 2023. Furthermore, in inflation-adjusted terms, household deposits accrued over the pandemic have evaporated, rate rises will continue to weigh, and we do not expect to see further easing in energy costs. Spending will probably remain subdued until interest rates start to fall, as households focus on continued living cost pressures.
David Cobham, professor of economics at Heriot-Watt University: Most people will feel that they have not recouped the losses they have suffered in recent years (indeed, since 2010).
Diane Coyle, professor of public policy at the University of Cambridge: Worse. The issue isn’t just incomes and inflation, but that people’s experience day to day is getting worse as public services crumble and their local authorities have to make more service cuts.
Bronwyn Curtis, non-executive director, Oversight Board at Office for Budget Responsibility: Inflation may be lower, but until there is a sustained improvement in personal disposable incomes they will feel worse off. This is not going to happen between now and an election.
Paul Dales, chief UK economist, Capital Economics: 2024 should just about be a better year for most households than 2023, but some households will be left behind. A further fall in inflation below pay growth will mean that the level of real wages rises and continues to reverse the falls in 2022 and in the first half of 2023. But any households that were particularly reliant on government support, which is being scaled back, may not be in a much better financial position. And any households whose fixed mortgage expires in 2024 will probably end up on a higher rate and feel the pinch. Overall, though, the cost of living crisis is moving into the rear-view mirror.
Howard Davies, chair at NatWest: Those who remortgage in 2024, or lose their jobs, will feel and be worse off. Pensioners and minimum wage earners will feel and be better off. The rest of us will not notice much change.
Panicos Demetriades, professor emeritus at the University of Leicester: The majority of voters will feel worse about their living standards in the run-up to the election, and will partly ascribe that to economic mismanagement by the Conservative government, with the prime examples being Brexit, the mismanagement during the pandemic and the experiment with Trussonomics. Inflation and interest rates are now much higher than they have been in recent times. High borrowing costs are taking their toll, the economy is stagnating and borrowers coming out of mortgage deals will feel the pain.
Dhaval Joshi, chief strategist at BCA: Voters’ misery will not meaningfully alleviate. In economic terms, the “misery index” is defined as the sum of inflation and unemployment. So, while inflation is set to come down making voters feel less miserable, this will be countered by a rise in unemployment making voters more miserable. Meaning that voters’ overall misery will stay elevated.
Noble Francis, economics director at the CPA: Overall, better off than in the last two years. Households are likely to see a rise in real wages with relatively strong nominal wage growth early in the year and with inflation having slowed. The cut in national insurance and rise in the national living wage will particularly help those on lower incomes who were hardest hit by the sharp rises in the cost of living, interest rates and rental prices over the past two years.
Sir John Gieve, chair at Homerton Healthcare: Broadly the same (extra mortgage payments and rents will offset the impact of real wage rises).
Charles Goodhart, professor emeritus at LSE: Slightly better.
Andrew Goodwin, chief UK economist at Oxford Economics: It depends on their personal circumstances — there’s much greater polarisation of experiences at the moment than is normally the case. If they are one of the 1.5mn households refinancing their mortgage this year then they will feel much worse off. If they are an owner occupier with large savings they will feel better off. Most others will probably start to feel a bit better off, but will still have endured a substantial hit to their spending power compared with a couple of years ago.
Louise Hellem, chief economist at the CBI: Households should see some improvement in their living standards but are unlikely to feel much cheer going into 2024. While falling inflation will support household incomes, households continue to face headwinds with the impact of higher interest rates continuing to bite for many alongside a mild increase in unemployment.
Jessica Hinds, director at Fitch Ratings: Although the cost of living squeeze is set to fade next year as wage growth outpaces inflation, consumer prices will still be rising at a fairly rapid clip relative to pre-pandemic standards. Unemployment is also set to rise towards 5 per cent thanks to weaker economic activity, while long-term sickness remains a barrier to work for many. What’s more, many indebted households’ budgets will also be hit by the increase in monthly payments as their short-term fixed-rate mortgages expire and need to be reset at new, much higher rates.
Dawn Holland, director, economic research at Moody’s Analytics: Interest rates will probably be on the way down by the time of the election, which should give some boost to consumer confidence. But this will be largely offset by higher mortgage payments, since around 2mn households will need to refinance their mortgage to a higher rate by the end of 2024. If energy prices remain contained, voters will probably feel marginally better overall, but it is a close call, and we are unlikely to see a rebound in consumer spending before 2025.
Ethan Ilzetzki, associate professor in economics at the London School of Economics: Roughly the same. GDP growth will continue to be tepid next year, similar to 2023. Baring new surprises, inflation will be lower than this year, but with the price level elevated and real wages stagnating, households continue to feel a squeeze on their finances.
DeAnne Julius, distinguished fellow at Chatham House: Better.
Jumana Saleheen, chief economist and head of investment strategy group at Vanguard, Europe: I expect the average UK voter to feel about the same or worse about their living standards in 2024. Living standards are typically measured using productivity — defined as gross domestic product (GDP) per person or per hour. Rising productivity signals a rise in living standards. Evidence from the Office for National Statistics shows that UK productivity per hour has been stagnant since 2022. Looking forward, I expect GDP growth in 2024 to be about the same as in 2023, and the unemployment rate to rise. Taken together, these would imply a mild fall in productivity (and living standards) in 2024.
Cathal Kennedy, UK economist at Royal Bank of Canada: A bit better — real wage growth has turned positive and should remain so as inflation falls faster than wage growth — but probably not enough to deliver a significant boost for the government or for voters to forgive it for the longer-term stagnation in living standards they’ve overseen during their time in office.
Barret Kupelian, chief economist at PwC UK: On an aggregate basis real wage growth will be positive, which will make households feel better, but that is starting from a low bar. Real household disposable income will continue to remain below pre-pandemic levels and housing costs will continue to bite. Consumers might be better off in terms of the headline income numbers relative to 2023 but I doubt their spending patterns will reflect this, partly because of the uncertainty a rumoured Q4 election could spark.
Tim Leunig, director of economics at Public First Consulting: Pensioners will. Those who have paid off their mortgages will be OK. Private renters and those with mortgages will not.
Preston Llewellyn, partner at Independent Economics: Better. Barring another price shock from abroad, UK wages will grow at least somewhat faster than prices.
Gerard Lyons, chief economic strategist at Netwealth: Better as living standards should improve over the coming year, but this will not compensate for the hit that has been seen since the 2008 financial crisis. Since then the UK has become a low growth, low productivity and low wage economy. But, in 2024, wage growth should exceed inflation and allow living standards to improve. Voters will also be impacted by other factors, and thus the picture will vary. The labour market should remain strong, even though the unemployment rate may rise slightly during the year. Lower interest rates may ease some stress in the housing market, but not remove it fully for those who are remortgaging. Renters will continue to be squeezed by high rents eating into their disposal income. Even though there may be income tax cuts in the spring, this will not compensate fully for the non-indexation of the tax system and personal allowances not rising in line with inflation.
Christopher Martin, professor of economics, University of Bath: More or less the same. The economy is flatlining and real wages are pretty stagnant. There is no prospect of that changing over the next few months.
Jack Meaning, UK chief economist at Barclays: On the surface, with inflation slowing and the unemployment rate ticking up relatively slowly, we should see real disposable incomes growing in 2024. Unfortunately, that comes off the back of two years where incomes per head haven’t grown at all, so we’re just catching up with what we’ve lost. Cuts in tax rates — like the changes in national insurance contributions — will be offset by the decision to freeze tax bands, meaning many won’t feel much benefit. And even as the monetary policy cycle turns, many people will be dropping off of fixed-term mortgages on to new deals with higher rates than they had previously, eating away at that newly found spending power.
David Meenagh, professor at Cardiff University: With inflation continuing to fall throughout 2024, voters should feel better about their living standards. The recent cut in NI will also help.
Costas Milas, professor of finance at the University of Liverpool: Slightly better. I expect wages to grow above inflation throughout 2024. By the end of 2024, real wage growth will converge/settle to around 1 per cent, that is, the long-run/historical real wage average since . . . 1209.
Stephen Millard, deputy director for macroeconomic modelling and forecasting at the National Institute of Economic and Social Research: Voters should feel better about their living standards in the run-up to the election as, for the first time in a few years, wages are growing faster than prices.
Andrew Mountford, professor at Royal Holloway, University of London: While real wages have started to have positive growth again, I don’t think this will be enough to change the sentiment generated by the very low average growth of real pay over the longer term eg, since the financial crisis. This together with the deterioration of public service provision (eg, NHS waiting times, transport infrastructure etc . . .) will make many people feel themselves worse off at the next election.
Gulnur Muradoglu, professor of finance at Queen Mary, University of London: It is difficult to say voters will feel better or worse before the election. On the one hand interest rates and inflation are in decline. The prices of food, housing and energy that households use are high and incomes have not caught up with those prices increases yet. Households, ie voters will feel better when inflation and interest rates stabilise and incomes catch up with new price levels.
Andrew Oswald, professor of economics and behavioural science at Warwick university: I expect voters to feel slightly more cheery about their living standards in the run-up to the election — partly because wage rises will feed through as partial catch-up for the abrupt price inflation that happened first. Humans bounce back from black gloom if they are simply offered grey gloom.
Ipek Ozkardeskaya, senior market analyst at Swissquote Bank: Deterioration in living standards could decelerate, but will unlikely reverse.
David Page, head of macro research at AXA IM: Perceptions of UK living standards are likely to be mixed. We expect inflation to continue to fall across 2024 — albeit not quite reaching 2 per cent within the year. Combined with wage growth which we expect to fall at a slower pace, this should ensure rising real wages, which should help most working households feel better. Moreover, still likely elevated interest rates should help support some wealthier non-working households. However, mortgage holders — and those in rented accommodation — are likely to feel the ongoing and lagged squeeze of higher interest/mortgage rates. And those on some welfare programmes are likely to continue to feel a squeeze. We doubt many across the UK will recognise a perceptible improvement in living standards next year.
John Philpott, director at The Jobs Economist: Neither better nor worse. Against a backdrop of broadly flat economic growth, 2024 will feel like another “hard times year” for most households. Although the rate of consumer price inflation will continue to fall it will remain elevated, with at best a very modest increase in real wages doing little to boost the feelgood factor. Nominal wage growth will trend downward from recent highs, in part tracking price inflation and in part because of a slight rise in unemployment. With little prospect of a substantial cut in interest rates in sight, and the tax burden still rising despite reductions in national insurance contributions, most people will continue to be mired in a cost of living crisis. It’s thus likely that when voters eventually go to the polls the sunlit economic uplands of election rhetoric will still be shrouded in gloom.
Kallum Pickering, senior economist at Berenberg Bank: Better. Real wages already started to rise towards the end of 2023. Further gains into 2024 combined with lower borrowing costs — driven by Bank of England rate cuts from Q2 onwards — should help to further ease the squeeze on household budgets.
Ian Plenderleith, former member of the Bank of England’s Monetary Policy Committee: Worse: take-home pay may be a bit higher, but poor public services and lingering effects of the inflationary surge will make people feel worse off.
Richard Portes, professor of Economics at the London Business School: Worse, unless we see an enormous giveaway in the spring. But not much room for that.
Jonathan Portes, professor of economics and public policy at King’s College London: Living standards, as measured by real disposable income, are on average probably rising slightly now as wage growth outpaces inflation. But the experience will be vastly different between different groups, with renters and those facing higher mortgage payments still being squeezed, while upper and middle income groups who own their own homes will benefit. How voters will feel is a political question as much as an economic one, but looking over a longer period, the record of the last 15 years on growth, productivity, wages and living standards has been extremely poor by historical standards.
Adam Posen, president at Peterson Institute: Worse.
Lydia Prieg, head of economics at The New Economics Foundation: Inflation may have fallen but prices are still rising and the cost of living crisis is going nowhere. Currently, more than four in 10 households are unable to afford the essentials and New Economics Foundation analysis shows that, by April 2024, the poorest households will be falling over £200 a week short of what is needed for an acceptable standard of living. People are much poorer than they were 15 years ago and a generation of young people have never known wage growth. Child poverty in the UK has also increased by 20 per cent since 2014 — the largest rise among OECD and EU countries.
To address the cost of living crisis, the government should start by scrapping the two-child limit and the benefit cap. Then they need to go further by redesigning our social security system to provide an income floor beneath which no one can fall. We also need increased investment in green energy and a widespread home retrofitting programme to protect us from future spikes in global fossil fuel prices.
Vicky Pryce, chief economic adviser at the Centre for Economics and Business Research (CEBR) and former joint head, UK Government Economic Service: We have seen an improvement in consumer confidence coming mainly from the drop in inflation as real wage growth has returned in recent months. The cut in the NIC rate, amazingly and unusually becoming effective as early as January, will also help living standards as will the inflation-compensating increases in the minimum wage and in most benefits. But all this is unlikely to fully offset the sharp increase in stealth taxes affecting millions of people. And while unemployment remains low, recruitment intentions are slowing as are advertised vacancies. More tax cuts are therefore likely in the spring Budget to stimulate demand and the feelgood factor in this, an election year.
Thomas Pugh, UK economist at RSM UK: Real wages will rise next year as pay growth falls more quickly than inflation. But 1.5mn homeowners will need to remortgage, meaning that even if in aggregate voters are better off, it won’t feel like that for many.
Sanjay Raja, chief UK economist at Deutsche Bank: A lot will depend on the timing of a general election. If later in the year (ie autumn), we expect voters to feel slightly better about the economy. Tax cuts announced at the Autumn Statement will boost sentiment. And very likely we think there will be a little more fiscal giveaways at the spring Budget. This too should give households and businesses a further boost.
More importantly, if our growth forecasts are broadly on the mark, we should see an economy on the verge of recovering gradually back to potential. Inflation will look more or less normal, while falling inflation will continue to boost real wages. Moreover, the longer the government waits to call an election, the higher the likelihood that the Bank of England could start cutting rates. This would see consumer and business sentiment improve.
Andrew Reeve, at Waldron Smithers: Worse.
Ricardo Reis, professor of economics at LSE: About the same. Most of the forecasts are for growth in between 0 per cent and 1 per cent next year.
Matthew Ryan, head of market strategy at Ebury: We expect to see a modest improvement in UK consumer confidence in 2024. The continued easing in inflation should alleviate the squeeze on disposable incomes, as should the return of real wage growth back into positive territory. Britain’s labour market, in general, looks set to remain resilient in 2024, which should be supportive of consumer spending.
The outlook remains far from rosy, however, as tight financial conditions continue to filter through to household budgets via an increase in mortgage payments and rent. Fiscal assistance will also become less generous as the cost of living support is removed from the UK government. We’re continuing to pencil in an acceleration in expansion of economic activity in the coming year, although this is only likely to be reflected in a very modest improvement in living standards, at best, for most of Britain’s population.
Michael Saunders, ex MPC, now senior adviser at Oxford Economics: Overall, a little better, but not enough to offset the long period of economic stagnation over recent years. Real wages will be rising, but so will unemployment, the tax burden, rents and the average interest rate on the stock of mortgages. Households that have to refix an expiring fixed rate mortgage will probably feel decidedly worse off, because they will be coming off mortgages fixed at super-low rates. I do not expect a “feel-good” factor in the run-up to the election.
Yael Selfin, chief economist at KPMG: Wage growth is expected to continue overtaking inflation, allowing households to recover purchasing power. But with interest rates still feeding into higher mortgage payments, as more fixed term mortgages move on higher rates, many households will continue feeling the strain while have less surplus savings saved during the Covid pandemic times to cushion the squeeze.
Andrew Sentance, Business economist at Warwick Business School: Better off, due to falling inflation and high rate of pay increases.
Almudena Sevilla, professor of Economic and Social Policy in the Department of Social Policy at LSE: Worse.
Philip Shaw, chief economist at Investec: Modestly better. Some taxes are coming down and interest rates will probably follow later in 2024. Moreover the cost of living crisis should be officially over. But 2024 is hardly set to turn into an economic panacea, more a step up from a very difficult 2023. Given how far the Conservatives are behind Labour in the polls it is very doubtful that the scale of the improvement in the economic background will turn the Tories’ electoral fortunes around.
Andrew Simms, Co-director at New Weather Institute: Negative dynamics around inequality, health, social division and nature will probably make people feel worse in the run-up to the election. To guess how voters will feel about their living standards, you have to look at what really drives people’s subjective responses about their access to, and consumption of, goods and services. Mainstream economics notoriously confuses wellbeing and quality of life with the more quantitative measure of living standards. But beyond the point of fairly basic material security, other factors than levels of consumption are stronger in terms of shaping how people feel. One of the strongest influences over how people feel is the degree of economic inequality coupled with perceptions of fairness. Both of those are looking bad, given that the pay gap at Britain’s biggest 350 companies widened last year, with CEO’s taking 57 times more than the median wage, and the government performatively scrapped the cap on bankers’ bonuses.
A combination of underfunding, waiting lists, a failure to deliver on the post-Covid social contract to honour the extraordinary contribution of the NHS, coupled with high profile cases of brazen profiteering and nepotism around health contracts will undermine how people feel about health. Fear mongering and the political exploitation of migration as an issue is obviously socially divisive and, however unfounded, has the effect of making people feel less secure jobs, housing and access to services.
Prioritising polluting cars over clean air in towns and cities and abandoning nature and access to green space targets, in the name of political gain, will also undermine and feel good. Access to nature has a profound influence over wellbeing. Another significant influencing factor is people’s relative sense of agency, connection and participation. But, this government’s centralisation of powers, for example around the Levelling Up Bill, means it can increasingly “override development plans that were democratically approved by local communities”, as the charity CPRE put it. All told, the government is conjuring a perfect storm to make people feel worse in the run-up to the next election.
Nina Skero, chief executive at Cebr: Voters should feel a tiny bit better about their living standards in the lead up to autumn 2024, on the back of falling inflation, positive real wage growth and the National Insurance cut. A notable exception are households whose mortgages will roll off the fixed rate set pre 2022 in this period.
Any marginal perceived improvement comes from a very low base, however, and taking a more comprehensive look at UK living standards is far from encouraging. GDP per capita is set to have declined in 2023 and is expected to flatline in 2024.
James Smith, Research Director at Resolution Foundation: The pre-election backdrop for living standards is a difficult one. Inflation has more than halved, but it’s still too high, and is now more domestically driven, so will fall more slowly from here. So, for many, cost of living pressures are still intensifying with over a fifth of people still in food insecurity this winter (three times pre-pandemic levels). This is exacerbated by rough justice on housing costs with nearly two million families facing a jump in their mortgage repayments (of nearly £3,000 on average) as fixed-rate deals end, while renters signing new contracts face big increases in costs. Overall, we’re set for this to be the first Parliament on record during which real household disposable incomes have fallen.
James Smith, economist at ING Bank: Inflation is falling faster than pay growth and we expect real wages to gradually rise next year as a result. That fall in inflation will be particularly noticeable at the supermarkets, where falling producer prices (in level terms) point to further sharp falls in food inflation. The flip side is that the jobs market is cooling and that will translate into a further rise in unemployment, though we suspect the increase will be modest. The impact of past rate hikes will continue to hit too, and the average rate on outstanding mortgage lending will increase to 3.7 per cent (from 3.2 per cent now) by the end of 2024, based on the swaps curve. That’s a more modest rise than anticipated a few weeks ago when market rates were higher, and it’s worth remembering only a quarter of households actually have a mortgage these days (considerably more own outright). Much fewer still are refinancing in 2024. That creates winners and losers, but overall consumers shouldn’t feel their cost of living being squeezed as aggressively as 12 months ago.
Alfie Stirling, chief economist at Joseph Rowntree Foundation: By the next election the cost of living crisis is likely to have become increasingly polarised. Those in jobs and sectors that have already returned to real pay growth will probably see their living standards continue to improve. But those relying on typically less well paid jobs, as well as those on working age benefits, are likely to take longer to see a rise in real incomes. For many of those in less secure industries, the worst may still be to come as the labour market continues to shed jobs and hours in response to a high interest rate environment.
Susannah Streeter, head of money and markets at Hargreaves Lansdown: It may depend on exactly when an election falls and how long any sweeteners which could come in the Spring Budget have time to take effect. But overall, the squeeze on household budgets is set to continue and many voters will still feel the pain, particularly in lower income brackets. Wage growth may have fallen back, but it’s still strong and surpassing inflation and cuts to National Insurance are coming through in January. This should help alleviate some pressures on wallets, but household energy bills are set to rise in January, so consumers aren’t likely to feel they have that much more financial headroom. Just shy of 40 per cent of homeowners are mortgage free and are far more insulated from higher borrowing costs, so these pockets of the population, especially if they are benefiting from high wage growth and NI cuts, may well feel better off in the run-up to the election.
Gary Styles, economist at GPS Economics: Voters are unlikely to experience any tangible increase in their perceived or actual living standards in the run-up to the election.
Suren Thiru, Economics Director at ICAEW: Living standards will remain pretty grim as the boost from increasing real wages is largely offset by a squeeze on incomes from higher mortgage costs, the end of the cost-of-living payments and rising taxes.
The damage from 14 interest rate rises will crystallise further with the estimated 1.6 million homeowners, who will see their mortgage deal expire this year, facing a horrible jump in borrowing costs.
Phil Thornton, director at Clarity Economics: Whether compared to the eve of the general election in 2015, 2017, or 2019 voters will feel worse off about their living standards thanks to the impact of Brexit and the cost of living crisis delivered by spikes in prices of energy food and other essentials far outstripping wage rises over a prolonged period. Voters longer memories than just of the snapshot of prices and wages the month before polling day.
Anna Titareva, European economist at UBS: With headline inflation declining and nominal wage growth remaining elevated and likely declining relatively gradually, we expect the recovery in real incomes to support private consumption.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics: Monthly mortgage payments will jump for most of the 1.5 million households that have a mortgage with an initial fixed-rate period that lapses in 2024. Living standards for almost all other households, however, should improve. Take-home pay will rise more quickly than consumer prices, while people receiving the state pension or working-age benefits will see their payments increase by 8.5 per cent and 6.7 per cent, respectively, in April, far in excess of the current run rate of price rises. And while the unemployment rate looks set to continue to drift up in the first half of 2024, this likely will be driven by further growth in the workforce, rather than a jump in lay-offs. Accordingly, we expect households’ real disposable income to rise by about 1.5 per cent year-over-year in 2024.
Anna Valero, Growth Programme Director, Centre for Economic Performance at LSE: Voters are unlikely to feel much better about their living standards in the run-up to the election versus today. Inflation, while falling, is still high. The effects of interest rate rises to-date are still to be felt by many. The labour market is showing signs of loosening. This is in the context of 15 years of stagnant real wages — reflecting weak growth in productivity since the financial crisis. And we are still in a world of rising taxes overall, despite some of the pre-election giveaways seen in the Autumn Statement. The OBR forecasts that we are on course for the biggest hit to living standards since records began in the 1950s, with real household disposable income per person 3.5 per cent lower in 2024-25 than pre-pandemic.
Bart Van ark, professor of Productivity and Managing Director at The Productivity Institute, University of Manchester: Slightly worse on the whole. Those who have a job are likely to hold on them and see nominal wage increases. However, they will feel the sting of elevated levels of inflation which is eroding their purchasing power. Those with savings and wealth have more cushion to deal with inflation but will still feel worse off because of low compensation on their savings accounts and weak returns on their investments. Business owners will continue to feel the pain of a supply-constrained economy in terms of labour shortages, lack of investment opportunities with adequate return and an overall modest growth outlook.
John Van Reenen, Ronald Coase School professor at London School of Economics: Living standards will improve over the year as inflation continues to fall, but over the period since 2019 improvements have been slow. (See Fig 2.1.) And in the last 15 years real wages have barely grown, due to truly awful productivity growth.
Ross Walker, UK economist at NatWest: Much the same. De facto monetary tightening as debt-servicing costs continue to rise and a (probably modest) rise in unemployment will broadly offset lower inflation. Still, confidence has already begun to recover (less negative sentiment) from suppressed levels.
Martin Weale, professor of Economics at King’s College, London: Worse.
Matt Whittaker, CEO Pro Bono Economics: More so than in 2023, the answer is likely to vary from family to family. The broadly felt cost of living squeeze of the last 18 months will give way to a backdrop in which some households enjoy a recovery in their living standards while others struggle with some combination of unemployment, personal debt and rising rent and mortgage repayments.
Simon Wells, chief European economist at HSBC: In theory yes. Inflation is falling, annual wage growth is relatively high. But in practice, with inflation having taken a chunk out of real incomes over recent years, it won’t be good times — especially for anyone about to remortgage.
Michael Wickens, professor of Economics at University of York and Cardiff University: Neither. There will be no change. If Labour win the election, as expected, living standards for the less well off will improve, but will probably get worse for the economy if welfare expenditures increase.
Tomasz Wieladek, chief European economist at T Rowe Price: Most voters will feel better due to a combination of persistently high AWE growth, the rise in the National Living Wage and the National Insurance Cut in the Autumn Statement. At the same time, household inflation expectations for the year ahead are declining and will probably continue to do so in 2024. Voters will therefore see a rise in after tax disposable income against a perceived decline in prices. This will leave the majority of voters feeling better about their living standards ahead of the election.
However, those voters with mortgages (1/3 of households) that will require to refinance their mortgages in 2024 will see their incomes squeezed and will probably feel worse off ahead of the election, since the positive developments on the income side will not be able to offset the large drag from higher mortgage interest rates for many households.
Nevertheless, taking these two groups together, the majority of voters will probably feel better off.
Trevor Williams, visiting professor, University of Derby: Worse off, even though inflation is easing, disposable incomes will drop in real terms after tax and inflation are taken into account in 2023.
Tony Yates, Independent economist: A little better. I think there is a reasonable chance of a period where nominal wage growth outpaces inflation. It may not be material enough to make a big difference to how people feel.
Linda Yueh, Adjunct professor of Economics at London Business School: Unless there is another supply-side energy/commodity shock, the easing of inflation should lead to voters feeling better about their living standards in 2024. This also depends on having no demand-side shock that could change the current view that the economy will be sluggish and perhaps stagnant into one characterised by economic contraction and more sharply rising unemployment.
Azad Zangana, senior economist at Schroders: Worse. Although inflation is likely to fall, price levels will continue to rise, in particular the most visible prices such as food, home energy and fuels. We expect the government to lower taxes further at the Spring Budget, but the boost to disposable income may not be obvious fast enough, and not in-time before the election.
Will the Bank of England win its fight against inflation in 2024?
Alexandrovich Marchel and David Owen: No — but the trend will be in the right direction. Wage growth will have moderated, as would service sector inflation, both key to sustaining low inflation in the long term. However, neither will have moderated as much as the BoE is expecting, and there will be a growing focus on the inflation implications of net zero, and higher goods price inflation than was seen pre the GFC.
Kate Barker: If winning is getting CPI below 2.5 per cent — yes.
Nicholas Barr: Yes, but at a cost in terms of output growth.
RayBarrell: Inflation will have fallen to a reasonable level by the end of the year. The Bank will be winning, but the contest will not be over.
Charles Bean: Inflation will be lower but probably still running above the 2 per cent target, reflecting the second-round effects of the past spike in energy and food costs continuing to pass through the economy.
Martin Beck: Bar no surprises from geopolitical events, inflation should fall steadily this year and be back at the BoE’s 2 per cent target by the end of 2024. But how much this will be due to action taken by the BoE and how much a consequence of reversals of Covid-era supply chain disruption and 2022’s spike in energy prices is moot. The EY ITEM Club thinks the latter factors are, and will continue to be, more important drivers of falling inflation than higher interest rates. But the BoE is likely to take a different line.
David Bell: yes
Ana Boata: Inflation moderated more than expected in October − to 4.6 per cent from 6.7 per cent in
September − but 70 per cent of this is due to energy and food. Core inflation fell by -0.3pp to 5.7 per cent against 4 per cent in the US. Household inflation expectations in the next 12 months stand above 4 per cent. We expect inflation to fall from 7.1 per cent to 3.8 per cent in 2024. While the BoE did not increase
interest rates to 6 per cent as suggested by the level of inflation, it will probably keep them at 5.25 per cent until September 2024 and cut them to 4.75 per cent by December 2024 and 4 per cent by end-2025, 25bp above the Fed policy rate.
Philip Booth: Yes, with overkill. The Bank of England has not followed a coherent monetary policy for many years. It allowed the money supply to expand rapidly and was surprised by the inflation it created. It will similarly be surprised (indeed, it is already surprised) by the speed of the fall as it has allowed a rapid fall in money supply growth. The Bank of England is failing to monitor the ultimate cause of inflation.
Nick Bosanquet: No . . . inflation will be persistent at around 4 per cent. Danger of a dual economy: higher costs, especially this year’s 8 per cent wage increase will lead to more firms going into administration: wage price spiral by more secure firms.
Francis Breedon: The inflation outlook remains highly uncertain. Not only are the second round effects of rising prices on earnings still working their way through, the unusual combination of rising tension in the Middle East and falling energy prices seems unlikely to persist. However, our central forecast remains for falling inflation and so it appears the Bank is winning the fight — though it will probably not be won until 2025.
Erik Britton: Yes most likely — headline inflation will fall further and might even undershoot the target. The real prize, though, is core inflation, which will probably also fall, though how quickly remains to be seen — probably not job done on core inflation by the end of 2024.
George Buckley: Yes. While we don’t think inflation will fall as far as to hit the 2 per cent target by the end of 2024, we do think it will be very much on its way. There’s a lot of discussion about the last mile being the hardest, and I wouldn’t be surprised if it takes longer to get back down to 2 per cent from the peak than it took to get from 2 per cent to the peak in the first place. Moreover, it might take core inflation longer than headline to get to those levels. But the Bank should feel more confident with inflation having fallen, in our view, to around 2.5 per cent by end-2024.
Jagjit Chadha: Inflation will increasingly approach the neighbourhood of the 2 per cent target as the year progresses. But seems likely to stay above that target with somewhat more persistence than was anticipated by many. But broadly speaking, we will be not far from price stability without having generated a large recession.
Victoria Clarke: The “easy wins” for disinflation are not set to be repeated, but we still see plenty of scope for inflation to continue its downward trend all the way to 2 per cent. The trickier question is whether inflation’s return to target will be transitory or long-lasting. We see core inflation holding above 3 per cent through 2024 and 2025, underpinning our view that whilst the BoE can ease in 2024, bigger cuts will not be an option.
David Cobham: Sort of: inflation will be lower than now but not reliably or continuously close to the formal target.
Diane Coyle: Probably.
Bronwyn Curtis: A central bank can always get inflation back to the target if it pushes rates high enough and sends the economy into (deep) recession. It is a balancing act. Rates have probably been raised enough to bring inflation back to target within the next 18 months.
Paul Dales: Yes it will, but it will probably require the Bank to keep rates at their peak of 5.25 per cent for longer than the Fed and the ECB. That will mean it has to resist quite a lot of pressure as the Fed and ECB may cut rates in March and April respectively. I think the Bank will have to wait until the second half of 2024 before cutting interest rates. It should be able to declare victory over inflation in the second half of 2024.
Howard Davies: No. Inflation will remain noticeably above the 2 per cent target at the end of the year.
Panicos Demetriades: Inflation is already coming down by more than the Bank of England is expecting but the Bank of England is continuing to face credibility issues — initially it thought inflation was transitory and now it is warning that borrowing costs will remain high for an extended period of time, although the economy is stagnating and inflation is expected widely to decline to target by mid-2024. Not all is well at the Bank of England it seems — both its confidence and credibility appear to be shaky.
Joshi Dhaval: This will be a binary ‘either/or ‘ outcome. Either the BoE will win its fight against inflation, but at the cost of a deep recession. Or the BoE will avoid a deep recession, but at the cost of not winning its fight against inflation. So, killing inflation means killing the economy.
Noble Francis: The peaks of double-digit CPI inflation at the end clearly appear to be over, more than a year on from the spikes in energy and commodity prices after Russia’s invasion of Ukraine. Furthermore, the effects of slowing cost inflation appear to be feeding through the economy as food price inflation has also been slowing. But, strong services wage inflation and energy price rises over Winter may mean that inflation will still be stubborn early in 2024. Inflation is likely to slow after this, however, although it is likely that the Bank of England’s target rate of 2.0 per cent CPI inflation will only be seen in early 2025.
John Gieve: Not if that means getting CPI to 2 per cent but yes if it means that interest rates will be coming down and 2 per cent will look in reach
Charles Goodhart: Yes
Andrew Goodwin: will be well on the way to winning. We still expect inflation to be above 2 per cent by the end of 2024, but on a clear trajectory towards the target. Though we agree with the BoE that there is still some inflation persistence in the system, and pay rises in early-2024 will probably be higher than would be consistent with achieving the 2 per cent target, we suspect the BoE will ultimately prove too pessimistic on the pace at which we get back to target.
Louise Hellem: Inflation has turned a corner and should continue to fall, assuming no further external shocks. The hardest part will be the last mile in returning inflation to its target. Much of the fall we’ve seen over the past year has been driven by the declining impact of external shocks, whilst the remaining inflationary pressure is more domestically driven in the form of higher wage growth.
While inflation will come down, we expect it will still remain above its target, around 2.5 per cent, by the end of the year.
Given the stickiness in inflation over our forecast, and the risk of more persistent domestic price pressure, we don’t see enough to give us confidence that the Bank rate will move from its current level of 5.25 per cent through to the end of 2025, making us an outlier against market expectations for a reduction in the second half of 2024.
Jessica Hinds: We think that by next summer the MPC will feel sufficiently confident that inflation is coming down to start cutting Bank Rate. That said, headline inflation is likely to remain well above the Bank’s 2 per cent target throughout next year and core inflation higher still. So the Bank will certainly not be able to rest easy in 2024 — we expect the Bank Rate to remain in restrictive territory for a good while yet.
Dawn Holland: Inflation is likely to continue coming down in the coming months, allowing interest rates to start unwinding in the second half of the year.
Ethan Ilzetzki: Yes, baring any new surprises, although it depends on how you define winning the fight. I don’t think inflation will hit the target of 2 per cent in 2024, but it will hover on the upper end of the acceptable band, around 3 per cent, by the end of the year. This should be sufficient to see no further rate hikes and possibly even a rate cut by the end of 2024.
DeAnne Julius: Not quite. I expect unemployment to remain low which will keep core inflation sticky around 3 per cent. Meanwhile, energy prices will be spiky — both up and down — due to events in Ukraine and the Middle East.
Saleheen Jumana: Monetary policy will still bare its teeth in 2024. We estimate that the transmission of UK monetary policy is about 50 per cent complete. In other words, the impact of the Bank of England rate hikes since December 2021 is still working through the economy. As these effects reach their peak, economic activity is likely to soften further, thereby bearing down on wage growth and inflation next year.
The fight against UK inflation will only be won in 2025. UK inflation is likely to stay above the 2 per cent target through 2024, falling back to target only in 2025. We forecast CPI inflation to fall steadily from 4.9 per cent in the fourth quarter of 2023 to 2.6 per cent by Q4 2024. UK inflation is expected to fall through 2024 as high food prices unwind, goods price inflation eases and services inflation moderates.
Cathal Kennedy: The jury is still out to some extent on this one for us despite the recent falls in inflation — which is why we see rate cuts coming later than expected. As external shocks have passed through the inflation basket they’ve left an increasingly domestically generated inflation problem for the MPC to deal with. Squeezing that out of the basket, against the backdrop of a still tight even if somewhat cooler labour market, won’t be as easy as the big falls we saw in 2023.
Barret Kupelian: If by “win” you mean whether the Bank will manage to push the headline inflation rate to 2 per cent then the answer to that is yes. This is likely to happen in early 2025 though. This will be driven in part by higher interest rates, but also by the impact of higher base rates spreading over in the real economy and also the impact of higher energy prices feeding out from the denominator (energy prices account for around 90 per cent of the drop from the max inflation rate). However, do bear in mind that prices will continue to rise and will be c. 20 per cent higher relative to the beginning of the inflation spiral compared to a cumulative 10 per cent which would have been the case had inflation remained on par with the Bank’s target.
Tim Leunig: Probably, although of course shocks will continue to shock.
Preston Llewellyn: No. That will take until 2025. Wages grew at 6.0 per cent over the year to Q3 2923, whereas they grew at 4.7 per cent in the Euro area and just 4.0 per cent in the US. The requisite slowdown in the UK is therefore likely to take longer than in those two major economic areas.
Gerard Lyons: Given it notably lost the battle by letting inflation soar and misdiagnosing it as ‘transitory’, it is hard to claim the Bank will win the fight when inflation is set to decelerate. Nonetheless, the Bank should avoid a pyrrhic victory over inflation with excessive monetary tightening, which will hit the economy hard. Having been too loose for too long, policy is now too tight. To put this in context, the current price level (data for October 2022) is 22 per cent above its level of only January 2020. Thus, the price level is far in excess of where it should be if monetary policy had been well executed, as opposed to poorly. While inflation could touch the 2 per cent target during the course of the year, it still looks set to settle above the inflation target — at around 3 per cent — in 2025. This may allow the Bank to ease rates in 2024, but may limit its ability to cut rates aggressively.
Christopher Martin: Depends what you mean by win . . . Inflation is slowly falling but is above target and won’t reach 2 per cent in 2024. But inflation is becoming less of an immediate policy concern.
Jack Meaning: We’re not there yet, but the signs that the finish line is in sight are growing. Wage growth has turned a corner, and underlying momentum suggests it will continue to decelerate through next year, even with the boost from the National Living Wage. Goods disinflation got a head start and is already running at its pre-Covid level. Given the turn in wages and the stagnant outlook for the economy, services inflation should follow quickly and by the time we reach the spring, the Bank of England should be out of letter writing territory, with inflation under 3 per cent for the first time since August 2021.
David Meenagh: I expect inflation to fall towards the 2 per cent target in 2024, though not reaching it until 2025.
Costas Milas: Not quite. The BoE will manage to bring inflation down to about 2.7 per cent by the end of 2024.
Stephen Millard: Inflation is on its way down towards the Bank of England’s target of 2 per cent. But, it’s still a little early to declare the win! I expect inflation to reach something close to 3.5 per cent by the end of 2024, noting that this is still above the Bank’s target. And the risks are to the upside with the possibility of higher than expected wage inflation, not to mention geopolitical risks leading to another spike in energy prices. Given these risks, I don’t expect the MPC to reduce rates until late in the year.
Andrew Mountford: Yes, . . . probably! The large spikes in energy prices and food that were behind the increases in measured inflation have moderated and led to a reduction in measured inflation and inflationary expectations. However, we should note that UK inflation is higher than in most other G7 countries — and the UK has higher interest rates at 5.25 per cent — than the eurozone ie, that the Bank of England has had to fight inflation harder than other countries and so will have hurt investment more than in other countries and this will affect relative future growth.
Gulnur Muradoglu: The inflation rate is in steady decline now about 4.7 per cent. By the end of 2024 or the first quarter of 2025, I would expect the inflation rate to go below 2.5 per cent.
Andrew Oswald: Not to the required target.
Ipek Ozkardeskaya: Possibly, yes. More likely in H2.
David Page: The BoE already appears to be winning its fight against inflation. We think that Bank Rate has peaked and expect inflation to continue to fall back to its 2 per cent target by mid-2025 — so the Bank will unlikely declare victory this year. However, with an expectation of subdued growth and the risks that monetary conditions will continue with the lagged impact of current tightening — not least through delayed mortgage resets — we suspect that the Bank will increasingly have to consider the risks of undershooting its inflation target in the years ahead and start to ease policy in the second half of the year.
John Philpott: Not if this means returning headline CPI inflation to its 2 per cent target rate. The Bank is likely to make further progress in shifting inflation towards target but this will prove to be a protracted grind.
Kallum Pickering: Yes. Inflationary pressures are likely to further ease into 2024. Tight money combined with a loosening labour market will reduce wage pressures and services price growth to sustainable rates by the middle of the year. Headline inflation should fall within the 2.0-2.5 per cent range by the second half of 2024.
Ian Plenderleith: A luta continua! The flight to contain inflation is never “won”; it’s a continuing challenge. That said, there is a good chance inflation will continue to recede in 2024, but highly dependent on events. Happily, the Frelimo slogan did go on to say: “Victoria e Cerba!”.
Richard Portes: I don’t believe that wage pressures will have a significant effect on inflation, especially since the Bank has already tightened enough to bring on (mild) recession. Most of the battle has already been won, not primarily by the Bank (nor certainly by the government, which pretends that they are responsible for the fall in inflation).
Jonathan Portes: Yes. At the risk of getting this wrong for the third time in a row, I’d expect inflation to be back within the target range (ie below 3 per cent) by the end of 2025.
Adam Posen: Not without keeping rates stable and possibly raising them.
Lydia Prieg: Energy and food prices (the primary drivers of inflation) are predominantly imported, and so have always been outside of the Bank of England’s control. These non-domestic inflation pressures are falling and, assuming the Israel-Gaza conflict doesn’t spill over into the wider region, should continue to do so. While UK workers have enjoyed a few months of above-inflation wage increases, wage-increases are becoming smaller, which suggests that the Bank’s fear of a wage-price spiral is overblown. As higher interest rates continue to slow the economy, the employment rate and wages should naturally further weaken. While inflation is unlikely to return to target in 2024, a couple of years of slightly above target inflation is nothing to panic about, and is preferable to the alternative — a recession caused by the Bank overreacting.
Vicky Pryce: The Bank of England’s (BoE’s) public apology for underestimating inflation and the announcement of a review of its forecasting model by Ben Bernanke hardly helped with confidence in its ability to control inflation. They have understandably therefore been more cautious in their pronouncements than the US Federal Reserve which has adopted a much more dovish tone. Inflation is nevertheless dropping now but this so far has had almost all to do with falls in energy and food prices. But the rate of inflation has remained higher than in many other developed countries. One of the problems has been that the UK was rather late in moving to cap electricity prices when the energy crisis emerged in early 2022. This fed inflationary expectations, encouraging strikes and high wage demands which have now become embedded in the system. There has also been no serious attempt to control or put caps on food and other essential services such as transport unlike what is happening elsewhere. Instead, we have allowed above-inflation increases for many services- telecoms/mobiles/motor insurance -which seems odd in the circumstances. More control from regulators would be good.
So what happens now? There is no doubt that many businesses are struggling with the tight monetary and fiscal squeeze. The measures so far have certainly slowed the economy and the earlier sharp interest rate increases will now progressively be bringing inflation further down. The issue then will be whether the BoE will feel confident enough to start cutting interest rates in that environment, which they should, even when inflation is not back to target yet. In this, it is worrying that a minority of MPC members again voted for an increase rather than for the majority pause decision last month.
Thomas Pugh: Inflation and pay growth will have fallen by enough that the Bank will be able to start cutting interest rates in the summer. But inflation may rear its head again in 2025 as the economy recovers.
Sanjay Raja: Not entirely. We expect headline inflation to fall further through 2024. But there are still a number of hurdles before inflation can come back down sustainably to target. A shift in weights will push headline CPI higher, we think. Changes to the ONS’ methodology on private rents and used car prices will also lift CPI. And April indexation will see services inflation stay stickier — indeed, around a fifth of the services basked is directly linked to past inflation, making the descent in CPI a slightly slower one.
Nevertheless, there are big downward forces building in the price data. Food inflation is falling at speed. Core good inflation should trend towards a flat pace (annual) by year end 2024. And we see non-linear drops across some items in the services basket. As economists (ourselves included!) got it wrong on the way up, we are likely to overestimate the persistence of demand-sensitive items on the way down. The biggest potential catalyst for accelerating the inflation drop in our minds? Energy. If current gas futures pricing holds through the next year, we could see a more rapid drop in price momentum.
Andrew Reeve: No.
Ricardo Reis: Bar any new shocks, yes. It has tightened enough for inflation to be below 3 per cent by the end of the year. But of course, there will be new shocks that the Bank has to respond to keep to this target. I trust the MPC will make the right choices.
Matthew Ryan: We do not see a return to the Bank of England’s 2 per cent inflation target in a sustainable manner in 2024. The impact of higher rates and the base effect should continue to ensure a downward trend in the indicator of inflation, although the path towards a normalisation in price pressures looks likely to be a gradual one, with the ‘final mile’ in the inflation fight set to be the toughest.
Worker strikes remain commonplace, as do labour shortages, which should act to prop up wage growth. Households and businesses will also continue to adapt to the inflationary environment by demanding higher wages and setting higher prices respectively, which will make the MPC’s task increasingly challenging. This may ensure that BoE rates remain higher for longer than in most other major economies.
Michael Saunders: Yes, inflation is likely to return to the 2 per cent target around the middle of 2024, much earlier than the MPC have expected. Much of the drop reflects global trends in energy, food and goods prices, but the MPC’s rate hikes are also helping to bring inflation down.
Yael Selfin: The fight against inflation in the UK has proved more arduous and prolonged than in many other western economies, nevertheless inflation is on a clear path to target and we expect it to reach 2 per cent by early 2025.
Andrew Sentence: Inflation will not fall sustainably to 2 per cent in 2024. Maybe I. 2025 or 2026
Almudena Sevilla: Probably.
Philip Shaw: It will be on its way to winning, but probably inconclusively. Inflation will continue to come down over the coming months, particularly as food and goods price inflation continues to moderate. Indeed we could get to the 2.0 per cent target by mid-year. But looking beyond 2024 there is no guarantee that the necessary factors will be in place to deliver the inflation target on a consistent basis. In particular, potential labour shortages risk periodic bouts of higher wage growth and therefore sticky services inflation. Also, goods inflation is unlikely to be pulled down to the levels which prevailed in the 1990s and the early 2000s when disinflationary pressures from China were a dominant factor in keeping a lid on price pressures. Over the medium-term we are hopeful that inflation will be pulled down to target, on average, but the MPC will find it much tougher to achieve this than before the Covid pandemic.
Andrew Simms: It is worth restating that many of the things influencing the rate of inflation are factors beyond the control of the Bank of England. A big element, the price of energy, is already in retreat. Inflation was also up due to post-Brexit supply chain problems and the shock of Putin’s war of aggression against Ukraine. But those shocks have already happened, and because inflation compares current with previous prices that were hit by those dynamics inflation would reduce regardless of the Bank maintaining punitive interest rates. There are however lessons from the last few years that the Bank could learn from.
What the Bank should do to insulate Britain as far as possible from the inflationary effects of future external shocks to the economy, is ensure that cheap money is available to invest at scale in domestic renewable energy, housing retrofit, circular-economy manufacturing and sustainable food production. This could be achieved in tandem with the government by using its influence over Banks, risk management, institutional investors and targeted public money creation.
Bruna Skarica, Chief UK economist, Morgan Stanley: Our latest forecast is for headline inflation to average at 1.8 per cent in 4Q24 and at 2.2 per cent over 2024 as a whole, with the target reached in early spring. We expect continued — and fairly sharp — disinflation in core goods and food categories, with somewhat stickier services inflation. We are working with a ~10 per cent decline in Ofgem’s cap in April. With energy prices such a sizeable drag on headline, and such a relevant driver of second-round effects in the UK as well, the key risk to our forecasts is another spike in commodities prices.
Nina Skero: If winning the fight against inflation means getting the rate down to the 2 per cent target, then no, in 2024 the Bank won’t win the fight but it will get in a few punches.
We expect to see CPI at 3.0 per cent at the end of 2024, 1.6 percentage points below the current level but still well above target.
James Smith, Resolution Foundation: The tight labour market and rapid wage growth suggest the answer is no (based on this, both the Bank of England and the OBR are forecasting inflation will still be around 3 per cent in Q4 2024). But there are two reasons for thinking this might be too pessimistic. First, the labour market is loosening more quickly in the UK than in the US and euro area and higher-frequency measures suggest wage pressures are easing rapidly as a result. And second, with sterling appreciating, oil prices falling and trade-price deflation, there are strong global disinflationary pressures in train that could mean headline inflation falls faster than expected.
James Smith, ING: Headline inflation will probably be very close to 2 per cent in the second quarter next year, with core around 3 per cent. Lower food inflation will have shaved about a percentage point off the headline rate by May/June. Lower core goods inflation will help too. But it’s services that the BoE cares most about, and this is likely to stay sticky into early 2024 in the 6 per cent region. That’s too high for the BoE’s liking, but by the summer we expect this to reach the 4 per cent area. Some of that fall is down to the further lagged impact of lower energy prices. With the jobs market cooling, we think the recent fall in private sector wage growth will also continue. By next summer, there should be enough evidence for the BoE to be comfortable with lowering rates back towards a more neutral stance. Expect 100bp of cuts, starting in August, or perhaps even slightly earlier.
Alfie Stirling: Under most plausible scenarios, inflation was always likely to have returned close to the target by the start of 2025. The question has always been at what cost.
Susannah Streeter: The Bank will win a few more rounds but the big inflation fight is set to continue past 2024. Although imported inflationary pressures have eased the Bank of England will need to contend with domestically fuelled inflation, which is a tougher nut to crack. So, inflation is likely to stay above the bank’s target by the end of 2024.
Gary Styles: I would expect inflation to continue to improve albeit at a slower rate than the Bank would like.
Matthew Swannell: We expect inflation to fall over 2024, but to remain sticky as the labour market gradually normalises and pay pressures ease back.
Suren Thiru: Inflation’s should continue to slow at a decent pace this year with a notable fall in food costs amid improved supply chains and higher stock levels, likely to help drag the headline rate to within touching distance of the Bank of England’s 2 per cent target by the Autumn.
While sticky core and services inflation is likely to keep headline CPI just above target this year, these indicators should still end the year reassuringly lower, as slower wage growth and tight monetary policy help to choke off demand in the economy.
With inflation trending downwards and the economy at risk of recession, the case for interest rate cuts is likely to grow over the coming months. Against this backdrop, the Bank of England could well start loosening policy by September this year.
Phil Thornton: If the mark of victory is achieving the 2 per cent target then that will more likely occur in 2025 than 2024. However, inflation is moving in the right direction and may even fall below the 3 per cent level that will mean the Governor will no longer have to write a letter of explanation to the Chancellor. This is a ‘win’ in some way.
Anna Titareva: We forecast that after averaging 7.3 per cent in 2023 UK inflation will decline to 2.8 per cent in 2024. Our forecast assumes that inflation will return to 2 per cent in Q4 2025. We currently expect the first BoE rate cut in May 2024. However, with risks to the inflation outlook skewed to the upside we see a risk of a later cut (in August).
Samuel Tombs: CPI inflation will fall more rapidly than the MPC expects, but stickiness in the pace of price rises for services will prevent it from converging completely and sustainably to the 2 per cent target in 2024. We expect it to average 2.7 per cent in 2024, well below the MPC’s modal forecast, 3.6 per cent, in November’s Monetary Policy Report.
Anna Valero: The fight is unlikely to be won in 2024 — with inflation falling, but remaining above target. The external drivers of inflation are abating, though there is of course significant uncertainty given geopolitical developments. But there are concerns around the persistence in domestically driven inflationary pressures. The Bank of England has signalled that we are in a “higher for longer” world in terms of interest rates and we are likely to see inflation continue falling as the effects of hikes we have seen so far feed through the economy.
Bart Van ark: If that means getting inflation back to 2 per cent, the answer is no. Not in 2024. Supply constraints in the economy are too large.
John Van Reenen: If by ‘win’ we mean getting back to the 2 per cent target, the answer is ‘no’. Inflation will probably continue to fall, but won’t get back to 2 per cent until 2025.
Sushil Wadhwani: Inflation is likely to continue to fall in 2024 but there is a significant risk that wage growth remains too high to be compatible with the inflation target. By way of example, the BOE’s DMP survey still shows wage projections running at around 5 per cent.
Ross Walker: Yes. Enough to cut rates. Current domestic inflation is elevated and somewhat sticky, but monetary policy is only now beginning to restrain domestic demand (the fall in inflation over the past year is overwhelming an external/base effect phenomenon). The proverbial pulling on a piece of elastic tied to a brick.
Martin Weale: Not completely
Simon Wells: Inflation is unlikely to fall all the way back to 2 per cent in 2024. We see it ending the year at 3.0 per cent.
Matt Whittaker: Will inflation be back at something closer to normal and on a pathway to target? Yes. Will it fall back to 2 per cent and allow for any significant easing of the monetary policy stance? No.
Michael Wickens: Inflation in the UK has little to do with what the Bank of England has done. It is falling in all western countries and the UK is benefiting from that. The Bank was behind the curve in raising rates and is now behind in reducing them. It has also made a mess of unwinding QE.
Tomasz Wieladek: The Bank of England will make a lot of progress in its battle with inflation. The Average Weekly Earnings index will finally catch up with other wage measures, which are significantly lower. Pay settlements in January and April will probably be lower than expected and bring wage growth closer to the 3-4 per cent level necessary for inflation to be close to target in the medium term.
The Bank will probably win this battle in 2024 but at the cost of an unemployment rate that is rising faster than projected.
Trevor Williams: It’s not a phrase I like; monetary policy always has to be alert to inflation and deflation. UK consumer price inflation will fall in 2024 because of a number of factors. The Bank of England is one because of high interest rates and QT; others are lower global oil, gas and food price inflation and price rises falling out of the annual comparison, which has nothing to do with the Bank of England’s actions.
Tony Yates: Obviously the fight is never over and won, but yes, I think inflation will continue to fall back to the target.
Linda Yueh: Absent another supply side shock, inflation should continue to slow as the impact of the current commodity and other shocks work their way through. How quickly these baseline effects work through will determine whether core inflation, stripping out energy and food, slows sufficiently for the central bank to be on course to reach its inflation target which may not be reached until 2025 in their own forecasts.
Azad Zangana: The BoE will probably start to lower interest rates over 2024 as inflation heads back to its 2 per cent target. However, once most of the energy and food inflation falls out of the annual comparison, the remaining underlying inflation in services and domestic price pressures is likely to persist. The BoE will probably remain cautious, cutting slowly, and keeping monetary policy restrictive, even by the end of 2024.
Will the UK economy escape stagnation in 2024 — and if so, will it outpace or lag other advanced economies?
Alexandrovich Marchel and David Owen: Yes, a slow growing economy that builds some momentum later in 2024. Neither a leader nor a laggard, somewhere in the middle of the pack.
Kate Barker: Slow growth seems the most likely. Will lag the US — but the EU may be similar to the UK.
Nicholas Barr: Growth will be positive but slow, and will lag most other advanced economies.
Ray Barrell: Growth in the UK should be moderately positive in the next year. As inflation has been higher and is more persistent in the UK than in most other advanced economies interest rates will be higher and growth lower.
Charles Bean: Continued stagnation is the most likely outcome. And given the more persistent inflation in the UK than elsewhere, any recovery in UK output growth is likely to lag behind that of other countries.
Martin Beck: Yes, but only marginally. The EY ITEM Club thinks the economy will grow by less than 1 per cent this year, a little better than the very subdued pace 2023 looks to have delivered. But weak calendar-year growth in 2024 will partly reflect a poor starting point, given the lack of GDP growth in the second half of last year. On a quarter-on-quarter basis, growth should build as households and firms gain from falling inflation, the BoE begins to cut interest rates and the tax cuts announced in the Autumn Statement take effect, with potentially more to come on that front in next spring’s Budget. The UK is likely to put in a similar performance to the major European economies, which face similar head- and tailwinds. But the gap with the better-performing US economy is likely to persist, as the latter continues to benefit from cheaper gas prices, greater fiscal support and a culture more positive about material gains.
David Bell: It will stagnate, probably doing as badly as other advanced countries (USA excepted).
Ana Boata: The bulk of outstanding mortgages are fixed for either two or five years and businesses are generally hedged across a similar period. This has slowed the rise in effective average interest rates charged on the outstanding stock of debt. As these fixed rates come to an end, consumers and businesses will find spending budgets coming under pressure, mainly
starting in 2025. Some of the pressures will be absorbed by still resilient corporate earnings and by cash holdings, which stand at 20 per cent above pre-pandemic for households and more than 30 per cent for corporates. Hence, we believe the UK will avoid a recession but growth will remain weak at +0.6 per cent in 2024. This compares to +0.8 per cent in the Eurozone and +1.4 per cent in the US.
Philip Booth: Growth will remain sluggish until there is a radical liberalisation of land-use planning regulation.
Nick Bosanquet: No: growth 1 per cent or less: danger of recession high. Will lag other economies.
Francis Breedon: Stagnate growth seems likely in 2024 and beyond, with Scottish GDP rising even more slowly (in the longer term) than the rest of the UK largely due to its slower population growth.
Erik Britton: No, the UK economy is set to stagnate or even go into recession, barring some radical fiscal intervention by the government (which cannot be ruled out). Even then, the impact is likely to be short-term only. The UK is among the weakest of the G7 economies and looks set to stay that way. Productivity growth is close to zero. New thinking is needed on how to put that right.
George Buckley: We expect a short and shallow recession in the very near-term followed by a rather lacklustre recovery thereafter. What’s interesting is that consensus, Bank of England and IMF forecasts for long-run/trend growth have been revised down substantially over the past 15 years. Even after the global financial crisis, expectations were for long-term growth to be in the 2.5-3 per cent vicinity; headwinds from demographics, productivity, Brexit, climate change and other issues could see growth settling at less than half those rates. We think the combination of interest rates and GDP growth required to meet the 2 per cent inflation target in this new world could be worse than in the past.
Jagjit Chadha: The UK will continue to stagnate in the economic doldrums, until at least once we have had the election. And we will probably bring up the rear in the G7 in both 2024 and 2025. The material point though is that this simply continues a period of poor economic progress since the financial crisis and it is difficult to be optimistic about any possible return to historic, and once granted, levels of income growth.
Victoria Clarke: The UK looks set to continue its same old stagnation story in early 2024. Our outlook would have been more subdued were it not for announced fiscal support and the likelihood of more election-year stimulus in the UK and overseas, including the US. We think modest growth will kick-in later in 2024, as lower headline inflation gives the Bank of England the option to cut rates to a somewhat less restrictive stance than currently.
David Cobham: Growth will be trivial at best.
Diane Coyle: 2024 might be a bit better than 2023 but any growth will prove temporary as the foundations for sustained growth are not there. The bill for sustained under-investment in everything from infrastructure, health and education to private business is coming due.
Bronwyn Curtis: The UK economy is more likely to stagnate in 2024 and the risks to growth are on the downside. 15 years of relative economic decline compared to other advanced economies cannot be reversed in one year.
Paul Dales: 2024 will be another year of stagnation for the UK economy with GDP growth of around 0.0 per cent. That’s because the drag on activity from the lagged effects of the previous rises in interest rates will offset any boost from the fading of the cost of living crisis. This will leave the UK in a similar position to the eurozone (GDP growth in 2024 of 0.0 per cent), but behind the US (1.0 per cent). Things should start to improve in the second half of 2025 though as interest rates flip from being a drag on economic growth to boosting it.
Howard Davies: I expect the economy to be broadly flat in 2024, as the impact of interest rate rises is felt. The US will do better; the eurozone much the same.
Panicos Demetriades: All the major forecasters expect the UK to just about avoid a technical recession in 2023 and grow by less than 1 per cent in. 2024. According to the IMF UK growth in 2024 will be the lowest among the G7.
Joshi Dhaval: The only way to escape stagnation/recession in 2024 is to lose the fight against inflation. So, while it would give a sense of short-term relief, it would create a much bigger and longer-term problem of embedding inflation in the economy, akin to the 1970s.
Given that, among the major economies, inflation is still the highest in the UK, the UK’s economic performance is likely to lag its peers.
Noble Francis: UK GDP growth is likely to remain significantly below 1.0 per cent again in 2024 due to the lagged effects of previous interest rate rises partially offsetting the benefits of real wage growth, tax cuts and the rise in the National Living Wage. Prospects for UK economic growth are, however, considerably better in 2025 when GDP growth is likely to rise to 1.5 per cent as inflation moves closer to the target and interest rates fall. UK economic growth in 2024 is likely to slightly lag behind that in Germany, France and Italy. Conversely, we would expect growth in the UK during 2025 to be marginally higher than in Germany, France and Italy. However, in both 2024 and 2025, UK GDP growth is likely to be outpaced by economic growth in the United States.
John Gieve: I expect stagnation to continue in the UK — US will be stronger, EU about the same (on average).
Charles Goodhart: It will escape stagnation, but do worse than most other advanced economies.
Andrew Goodwin: No. We think the UK will endure another year where the economy grows by 0.5 per cent or so. Much of the impact of tighter monetary policy is still to come through. And though the Autumn Statement measures mitigated the hit, we are still due to have a substantial tightening of fiscal policy next year. The global backdrop is unlikely to offer much support to UK growth either.
Louise Hellem: Growth in the UK is set to pick up slightly in 2024 but remain lacklustre before more momentum builds into 2025. This picture is replicated in the Eurozone with a similar path for growth but the UK will continue to lag behind the US. Growth in China and India is expected to weaken slightly going into next year but remain robust.
Jessica Hinds: We think the UK economy is likely to be mired in stagnation in the first half of the year, but there should be some improvement in the second half as the squeeze from the cost of living eases and the Bank starts to cut interest rates. Our forecast is for UK GDP to grow by just 0.3 per cent in 2024, slower than in other major developed economies.
Dawn Holland: Growth is unlikely to exceed 0.5 per cent in 2024, with the UK lagging other advanced economies.
Ethan Ilzetzki: The UK will show tepid economic growth in 2024, around 1 per cent. This will put it towards the bottom of the list of OECD economies, likely below the US, Japan, and the EU. Further, because of its trade dependence, the UK faces greater downside risks related to geopolitical risks.
DeAnne Julius: The UK economy will continue to grow; more slowly than the US but faster than Germany and some other large EU economies.
Saleheen Jumana: Stagnation nation is the story for the UK, more sleeping beauty-like and less goldilocks.
After modest positive growth in the first half of 2023, UK GDP growth was flat in the third quarter. We stick to our call that the UK will slip into a mild recession in late 2023 or early 2024, as the impact of higher interest rates continues to filter through the economy. The UK will not be able to pull off a ‘soft landing’ or ‘painless disinflation’. The UK will not be able to pull off a ‘soft landing’ or ‘painless disinflation’. Instead, we expect 2024 to be a year of anaemic growth. We forecast below 1 per cent GDP growth in the UK, eurozone and the United States in 2024.
Cathal Kennedy: No. The first half of the year still looks set to be challenging to us as the pass-through of Bank of England policy continues. Real wage growth and the possibility of lower interest rates provide a moderate ray of light for the second half of the year but viewed in the longer term the UK’s growth prospects remain muted at best. UK growth will be again outstripped by the US but will be broadly comparable to European peers. While such comparisons feature high in media commentary are largely immaterial to UK households.
Barret Kupelian: It’s unlikely the UK economy will grow at rapid rates. Our main scenario projection in PwC is to the tune of around 0.5 per cent for 2024. If the international economic outlook improves, this could speed up economic activity via the exports channel. Realistically, if there is an election in Q4 next year there’s likely to be a period of sluggish (and potentially volatile) growth with consumers wondering what policies a new administration will pursue to boost growth on a sustainable basis (which judging from recent growth rates needs to be quite revolutionary), with productivity growth at the heart of it. Businesses are also unlikely to invest en masse and will rather adopt a wait-and-see mode to understand what the future policymaking landscape looks like for their sector.
Tim Leunig: No idea.
Preston Llewellyn: No. With the US economy likely to slow in 2024 as its IRA fiscal expansion wears off, and with Europe almost certain to be stagnant at best, the UK economy — which has seen almost no growth for six quarters — seems bound to continue to stagnate.
Gerard Lyons: No. Growth will be low, even though inflation will decelerate. It will be in line with, or outpace the other major Western European economies, but it will lag the US.
Christopher Martin: No. Continued low growth is more-or-less baked in. The UK will not perform as well as the US, where I expect higher output growth in an election year. But it may do as well as Germany and France.
Jack Meaning: It looks unlikely. With monetary headwinds continuing to weigh on households and a difficult global backdrop, we see growth remaining lacklustre, with the UK economy stuck on pause for most of 2024. On the positive side, a sharp, deep recession also seems unlikely. And we might have company, given what looks to be a gloomy outlook for growth in the Euro Area too.
David Meenagh: I believe we will see an improvement in growth in 2024, with no stagnation. UK growth could outpace European countries, but will most likely lag behind growth in the US.
Costas Milas: I expect the UK to escape stagnation but lag other advanced economies. My expectation is for 0 per cent quarter-on-quarter growth for 2024 Q1. Growth will possibly go up to 0.2 per cent, quarter-on-quarter, for each of 2024 Q2, 2024 Q3, and 2024 Q4.
Stephen Millard: Growth in 2024 will be anaemic at best. I expect GDP to grow by only 0.5 per cent; while this means the economy will escape ‘stagnation’, in the sense of growing a little, this is still a very low growth rate and lower than what I expect to see in other advanced economies.
Andrew Mountford: The potential headwinds and trends for UK output over the next year are well known, see eg, Bank of England Monetary Policy Report. These include headwinds to investment from high borrowing costs, trading frictions from Brexit and low consumer spending and export growth. Growth is expected to be very low in 2024. Whether there is small positive growth or negative growth next year depends on how these factors play out and it could go either way. However, discussing growth in terms of the short-term, or even just the latest data point, is not a very useful exercise. Growth is a long-term phenomenon. What really matters is the trajectory of sustained long run growth. What matters for this is our investment rate in key growth areas, eg, AI, Bio-tech, and computing and in the basic productivity of the economy eg skills, training and efficient infrastructures for eg transport, energy, trading and law. For AI the OECD estimates the UK does well in terms of investment compared to most but it is dwarfed by that of US and China.
Andrew Oswald: Marginally.
Ipek Ozkardeskaya: The UK will hardly escape stagnation, the UK economy will certainly lag the US, but could be in a better shape than the most battered European economies — including Germany.
David Page: No we do not expect the UK to escape stagnation next year. Our GDP forecast for the year is 0.0 per cent — a little below the consensus 0.3 per cent expectation. We expect several quarters of around zero growth across the course of the year. Our forecast is for growth to begin to accelerate modestly towards year-end and into 2025, but the first half of the year looks likely to continue to flirt with recession. We see this pattern likely across several advanced economies. Within that Germany looks likely to underperform with structural headwinds around its larger industrial complex, we expect the US to outperform again, with a resilient consumer and continued longer term investment.
John Philpott: The UK economy performed better in 2023 than expected this time last year, so one can hope for a repeat in 2024. But there is nothing in terms of demand side momentum or supply side renaissance that suggests anything other than a broadly flat year ahead. In terms of the international growth league table, a place in the lower part of the pack looks likely.
Kallum Pickering: The UK is likely to escape stagnation from roughly spring onwards. Once the Bank of England starts to turn monetary policy from tight to neutral, domestic demand should gain momentum. Expect annual rates of growth in the 1.5-2.0 per cent range by the second half of 2024. The big risk to watch in 2024 which could knock the UK recovery off course is a US recession caused by excessively tight monetary policy from the US Federal Reserve.
Ian Plenderleith: Barely escape stagnation: growth in below 1 per cent territory, lagging other advanced economies.
Richard Portes: Mild recession from now until Q2 2024, leading to mild recovery. Overall for the year, stagnation nation. But the eurozone will also be weak, partly because the ECB has also tightened excessively.
Jonathan Portes: If “escaping stagnation” means any positive growth then (as this year), yes. If it means — as it should — meaningful, sustainable, broad-based growth that benefits the majority of households, sadly not. UK economic performance is likely to be again similar to that of other large European economies (perhaps better than some, especially Germany, due to premature fiscal contraction).
Adam Posen: It may escape stagnation, but it will probably lag all G7 economies except Germany in 2024. And escaping stagnation will probably mean that there was a fiscal giveaway and more inflation along the way.
Lydia Prieg: The UK is stuck in an economic rut and we’re all poorer because of it. The government’s permanent tax breaks to businesses won’t automatically turbocharge private investment — remember that the UK had dismal investment during a period when it had one of the lowest rates of corporation tax. Without a serious increase in public investment in skills, housing, public services, and key economic sectors such as green energy, productivity will continue to stagnate and businesses are unlikely to have confidence in Britain’s future. This means that even in a couple of years time, when the economy finally escapes the stagnation stemming from the cost of living crisis, growth will continue to be lacklustre and the UK will perform well below its potential.
Vicky Pryce: It depends on how you define stagnation. Growth of around 0.5 per cent for 2024, which is what most forecasters assume, is not exactly indicating any real momentum in the economy — and can easily flip into recession by accident. As it is, despite some recent pick up in services output which you would expect around Christmas, underlying growth remains poor with continued contraction in manufacturing and construction. If interest rates stay elevated in contrast to the US where 3 cuts (and there could be more) are already signposted by the Fed, any hope of a sustained pick-up in growth will be elusive. Even in Europe, where rates are already lower anyway, the ECB’s Christine Lagarde conceded that they would look at data again in the new year. Not surprising really given that a number of countries in the eurozone are already in recession (including Germany) and some have in fact been experiencing actual price deflation.
Thomas Pugh: A resounding no on this one. Growth will probably be negligible as rising real wages are offset by the lagged impact of interest rates and lower government spending. Even though we aren’t forecasting a recession, there is a significant risk of one.
Sanjay Raja: While we do not subscribe to the recession camp, we think some modest growth is likely. This won’t be a boom, however. And we don’t expect growth to outpace this year’s forecast of 0.5 per cent. A meagre 0.3 per cent growth rate is our base case expectation.
The good news is that despite strong headwinds (from higher rates — nearly half the tightening in monetary policy is still due to hit the real economy in the next year or two — to weaker global growth),
tailwinds are slowly building. Real wage growth is here to stay for the next year or two as inflation continues its descent. Both household and business balance sheets are still pretty healthy. And business surveys have shifted away from their recessionary signals. Sentiment is improving. Altogether, modest growth is likely, and we see the UK economy expanding at a faster pace than the eurozone in 2024.
Andrew Reeve: no — stagnation will be the common fate of advanced economies in 2024.
Ricardo Reis: All forecasts are for it to grow roughly in line with the eurozone economy. Not much growth, maybe not a recession.
Matthew Ryan: As was the case this time last year, we think that forecasts for the UK economy in 2024 are overly pessimistic, particularly those recently issued by the Bank of England, and that calls for an almost nailed on recession are overdone.
That said, we still expect Britain’s economy to lag behind most other advanced nations in 2024. UK inflation looks set to remain stubbornly high, and the Bank of England appears likely to keep interest rates elevated for longer than many of its major counterparts, most notably the Federal Reserve and European Central Bank. Growth in the UK economy will probably remain rather modest at best, and it will be unquestionably difficult for Britain to emerge from stagnation for some time.
Michael Saunders: The UK economy will be pretty flat in the near term, with meagre positive growth for 2024 as a whole. Real GDP per head is no higher now than in 2019, pre-pandemic, and the growth of real GDP per head will probably remain among the lowest of the G7. The UK remains stuck in a low-growth rut, and the current government’s policies (Brexit and low public investment) have been part of the problem.
Yael Selfin: We expect the UK economy to grow by 0.5 per cent in 2024, which will place it among the slower growing economies across the developed world.
Andrew Sentence: The UK economy will experience stagnation or very slow growth in 2024.
Almudena Sevilla: lag.
Philip Shaw: The UK should manage to escape from what looks like a short, shallow recession at the turn of the year. Easier fiscal policy, via the Autumn Statement and in all likelihood the spring Budget too — will bolster demand. Also if inflation continues to subside, the Bank of England should be able to start releasing the interest rate brake during the summer, perhaps earlier, which will also stimulate the economy. So yes, growth should pick up over the course of the year, but while economists will doubtless take note, it is not clear that the upturn will be powerful enough to be visible to the average person in the street. Other economies’ GDP growth looks set to outpace that of the UK, partly because Britain’s underlying growth rate is relatively poor.
Andrew Simms: Don’t mistake the old-fashioned measure of GDP growth for success for the UK. They are not the same thing. What matters more is the degree of progress, stagnation or reversal in the transition to a zero, or negative carbon, high wellbeing economy. These are terms in which it is meaningful to ask if we are outpacing or lagging behind other countries. To escape a kind of polluting stagnation means public and private investment in the green sectors where good jobs will be created at a scale that allows us to flourish within planetary boundaries. The Green New Deal still provides the available model and plan that delivers multiple, simultaneous economic, social, wellbeing and environmental benefits to do that. The government’s attempt to weaponise an anti-environmental stance has been met with a weak response. Meanwhile, Keir Starmer, the Labour opposition leader’s cry of, “When Rishi Sunak says roll back on our climate mission, I say speed ahead,” suggests that with an early election, the benefits of a green stimulus programme could kick in quickly.
Without a quick change of direction, the UK looks ready to slip into reverse. With the latest research indicating that the economic costs of global heating are high, rising and probably underestimated, the Climate Change Committee reports that the UK is missing climate targets on nearly every front, and the National Audit Office found that the UK has no effective strategy in place to make the country resilient in the face of global heating.
Bruna Skarica: We expect a somewhat lacklustre 1H24, and still see risks of a technical recession at the turn of the year, as the impact of past monetary tightening weighs on growth. That said, we do think that growth could accelerate a bit more sustainably from 2H24.
Nina Skero: Cebr is expecting the UK economy to grow just 0.5 per cent in 2024 while inflation averages about six times that over the same period. Hence, there is no end to stagflation in sight. The country’s economic performance is set to roughly match or slightly lag behind those of major European countries while underperforming more significantly compared to the US.
James Smith, Resolution Foundation: Data and politics suggest the answer is no. Despite the UK now looking more mid-table in terms of its pandemic recovery, near-term indicators point to continued flatlining or even a shallow recession, putting it in line with Germany and Italy rather than the US. Meanwhile, the looming election means that neither main party wants to face up to the trade-offs implied by the necessary reboot of the UK’s economic strategy.
James Smith, ING: We think the economy will stagnate through at least the first half of 2024, as improved real wage growth is offset by the further pass-through of higher mortgage rates. Pressure on firms’ margins will also see the jobs market cool further. But consensus expectations for the UK to underperform much of Europe next year seem premature. The challenges facing the UK economy are broadly similar to elsewhere.
Alfie Stirling: The UK economy is likely to experience stagnation or worse, for most of 2024.
Susannah Streeter: The UK economy is highly unlikely to escape stagnation in 2024. As the pain of interest rates has taken a toll on companies and consumers, the economy has moved sharply into reverse. After an Autumn of adversity emerged, there appears little prospect of a fast turnaround in 2024. Across the three months to October, output was flat, with the contraction during the month cancelling out the better than expected performance in September. The UK is still mired deep in stagnation territory and a fast rebound looks unlikely, particularly given that the Bank of England has indicated that interest rates will stay elevated for an extended period. There are some signs that measures in the Autumn Statement will help increase business investment, particularly the move to make full-expensing permanent. However even if more investment is poured into the companies it’ll take time to fire up, so the UK is likely to lag other advanced economies, which are forecast to cut interest rates more quickly.
Gary Styles: The economy will continue to stagnate in 2024. Any actual improvement will be skewed towards the back of the year.
Matthew Swannell: Broadly speaking, we expect the UK economy to move sideways across 2024 as the previous Bank Rate hikes and tighter fiscal policy weigh on demand.
Suren Thiru: The UK faces another year of grim stagnation as the boost from lower inflation is effectively wiped out by the squeeze on consumer demand and business investment from the lagged impact of previous interest rate rises.
Stagnation could turn into recession if higher interest rates and the myriad of other cost pressures facing businesses trigger a sizeable spike in job losses.
While the UK may continue to narrowly avoid a downturn, sectors such as retail and construction will probably be in recession through most of 2024, given their direct exposure to high-interest rates.
The UK will probably lag most other advanced economies because of a bigger squeeze on consumer demand from stickier inflation compared to competitor nations. Chronic supply-side constraints, including skills shortages, will continue to hold back the UK’s growth potential relative to its peers.
Phil Thornton: No. the economy will probably post growth well below 1 per cent and the trend of 2.5 per cent. Growth of, say, 05 per cent will feel like stagnation. The cuts in public spending implied by the budget, the lagged impact of the previous hikes in interest rates, and the parlous levels of productivity growth will prevent growth from gaining momentum, instead keeping in its stagnation trough.
Anna Titareva: We forecast GDP growth of 0.6 per cent in 2024, the same pace as in 2023. We expect tighter financial conditions, particularly higher mortgage payments to be the main drag on growth over the coming months. However, the recovery in real incomes amid declining inflation should support the pick-up in growth in the latter part of 2024.
Samuel Tombs: The adverse impact of the increase in borrowing costs on business investment and residential investment has not come through fully yet. But households’ saving rate in 2023 likely was already three percentage points above the 2015-to-19 average, and a further lurch towards financial caution looks unlikely, given the recovery in consumers’ confidence over the past six months. Accordingly, households’ real expenditure likely will rise broadly as quickly as their disposable incomes, helping GDP to rise by 1.0 per cent in 2024, double the pace in 2023.
Anna Valero: Continued stagnation is likely in 2024 given ongoing headwinds for businesses and consumers, and the UK is likely to lag other advanced economies. Underlying this is continued weak productivity growth, which in turn can be explained by chronic under-investment in fixed capital, infrastructure, innovation and skills. Reforms to boost productivity take time to have an effect, and we are still in uncertain times in the UK policy-wise with a general election coming up, as well as globally.
But over time, I hope to see some progress due to some of the business investment policies announced in the Autumn Statement, for example across tax incentives (permanent full expensing of capital investment), planning and pensions reforms, and support for advanced manufacturing including clean technologies. Many of these reforms are in areas where there is broad-based support across the political divide. But the UK is still in urgent need of a more holistic and lasting growth strategy.
Bart Van ark: No, the UK is stuck in a stagflationary environment, and without a major investment boom, which is unlikely in 2024, cannot escape it soon especially as inflation and supply constraints remain stubborn. It will be at the bottom end of the growth distribution across OECD countries.
John Van Reenen: The economy will grow, but `stagnation’ is about whether the growth is well below potential, and the UK will continue to have anaemic growth without more radical action to improve chronic under-investment. We should always focus on GDP per capita growth (not total GDP growth which is unrelated to welfare), where I expect it to be in the middle of the G7 pack.
Ross Walker: No. We expect broad stagnation in the UK during 2024 and underperformance vis-à-vis the US and eurozone. Lagged monetary tightening, higher unemployment and a rise in precautionary saving, alongside hesitant capex and somewhat subdued external demand leave it difficult to envisage a vibrant rebound in 2024. The debate about a ‘soft landing’ seems to miss the point. How will ‘escape velocity’ be achieved?
Martin Weale: Probably not.
Simon Wells: With inflation lower and rate cuts now expected to come earlier, the signs are a little more upbeat than they had been. Economic growth should rise modestly through 2024. The UK should outperform Germany, which faces a number of headwinds, but not the US.
Matt Whittaker: More of the same looks most likely. Some ups, some downs, but zoom out and the basic picture is flat.
Michael Wickens: Growth is close to being a random walk, and gets frequently revised, so who knows?
Tomasz Wieladek: The UK economy will expand at a gradual pace next year, as a result of the fiscal stimulus in the form of the national insurance cut. Real wage growth will also support consumption going forward and the latest data indicate an improvement in the housing market, which is sustained, is consumption consumption-supportive as well.
However, Germany will probably stagnate or shrink again as a result of the 0.7 per cent of GDP fiscal consolidation in 2024 as a result of the return of the debt brake. This will also pull Euro Area growth significantly lower.
The UK will therefore outperform the Euro Area in terms of growth next year, but remain firmly behind the US.
Trevor Williams: The UK will remain low-growth and lag behind its peer group.
Tony Yates: I don’t think of stagnation as a binary trap that we are either caught in or out of. I think we are in for a very protracted period of zero to very low growth for the next decade or so. I would guess that growth will be less than other advanced economies, perhaps with the exception of Germany.
Linda Yueh: Perhaps but it’s challenging because interest rates are likely to remain restrictive while inflation is above the Bank of England’s 2 per cent target. The UK will probably lag behind the US which has had more government spending on various industrial policies, but probably remain approximately on par with continental Europe.
Azad Zangana: We suspect the UK economy is already in a technical recession at the end of 2023, which is likely to last over the first half of 2024. The economy might eke out a little growth over the second half of 2024, but our forecast has a negative year overall, underperforming the US and eurozone economies.
Which single policy change after the next election would do most to boost the UK’s long-term growth?
Alexandrovich Marchel and David Owen: A focus on how best to position the UK for a net zero world, be it through incentives and tax breaks, and a focus on innovation.
Kate Barker: No single policy would do much alone. But improvements to the planning framework by taking a proper spatial view of the UK and a robust approach to local objections might be my favourites. But the slow impact and political capital required may mean this cannot be done.
Nicholas Barr: I realise that I am not answering the essay question, but addressing the problems facing long-term growth mostly requires long-term policies. Notably, efficient private investment needs to be complemented by efficient public investment, which latter has been given too little emphasis over the past decade. What is needed is a medium-term strategy for public investment, including the NHS, social care, and wide-ranging investment in human capital.
If I am restricted to a single policy, it would be to replace the tax concessions for corporate interest payments with tax concessions for investment in factories and machines, etc, ie rebalancing the taxation of interest and dividend payments to remove the artificial incentive to financial engineering that actively militates against productive investment (fuller account here).
Ray Barrell: Major changes to planning regulation and to land use restrictions could have much larger effects than any other policy change. Some changes will be local but pervasive. Changes in planning to allow job-creating schemes (empty manor house becomes a hotel despite extra traffic) are essential. Decisions have been taken by a much wider community than at present. Other changes will involve more central decisions. Cambridge should have been allowed to expand significantly more than it has, for example. We would all have benefited. The greenbelt concept has to be re-evaluated. If this is all well done this could add one per cent a year to output growth for some time.
Charles Bean: The UK is lagging along several dimensions (private and public investment, investment in skills and innovation, adoption of best practice techniques, continuing challenges in adapting to life outside the EU, etc) so there is no single silver bullet. But a stable and predictable policy environment would be a help.
Martin Beck: Major tax cuts financed by addressing through root and branch reform the very poor performance of public sector productivity over the last two decades. As of Q3 2023, output per government job was almost 6 per cent lower than 20 years earlier. But output per worker in the private sector was 14 per cent higher. Narrowing this gap would square the circle of improving public services without further raising the tax burden or government debt, and free up resources for the private sector to expand.
David Bell: Comprehensive non-reversible policy on public infrastructure investment (biased to the north).
Ana Boata: Labour market reforms which should address the above peers’ supply shortages of workers. This should also increase the impact of the currently extended fiscal incentives for firms’ investment.
Philip Booth: Liberalisation of land use planning.
Nick Bosanquet: End era of centralisation/politicisation. Move to devolution and local/regional initiatives.
Francis Breedon: As Ireland has shown, openness to trade and investment has the best record for stimulating growth. As well as this, and as the OBR has highlighted, the UK (including Scotland) needs to return public investment towards the OECD average of around 3.5 per cent of GDP to create a public infrastructure capable of supporting growth.
Erik Britton: A huge step up in government support for innovation, including (but not restricted to) direct government funding of R&D. We should aim to at least double R&D as a share of GDP (public and private funding together). It is not enough to talk about AI and green energy and the rest: we need to show real ambition and urgency, and in the end, that comes down to £, and lots of them. We should pull apart capital spending (including R&D) from current spending in the budget and treat them separately. The constraints on capital spending should in normal times be less binding than those on current spending, and are set to relax as government borrowing costs start to come down. We should take full advantage of that.
George Buckley: Policies to support investment, such as making permanent the full expensing of certain capital spending in the latest Autumn Statement. Improving digital services and nurturing new technology should be helpful but these may have long gestation periods before they bear fruit — just like major industrial innovations in the past.
Jagjit Chadha: A clear plan for economic growth encapsulated in a commitment to measure and report on progress in an annual State of the Economy address, which we can use to gauge progress and provide a commitment technology to support business and other forms of investment.
Victoria Clarke: Effective action to improve health outcomes for the British population, arm in arm with a targeted approach to upskilling and reskilling the workforce for the post-pandemic era, will be important. This would reduce labour supply issues that are still apparent in some sectors and drive a gradual improvement in workforce productivity.
David Cobham: A serious attempt to undo, over time, the cuts to the public sector that have been made successively since 2010, within a longer-term strategy which incorporates fiscal sustainability.
Diane Coyle: Two, both unpopular with some voters so essential to do after an election: planning reform; and raising taxes to re-fund public services.
Bronwyn Curtis: There is no single policy change that will boost the UK’s long-term growth. What is needed is a sustainable long term macroeconomic framework that cannot be tinkered with by politicians looking for short term gains. Tax changes that support public and private investment in the industries that the UK is good at would be a start.
Paul Dales: Investment, investment and investment. A well-thought-through plan to boost both public and private investment could turn the dial on long-term growth.
Howard Davies: A fundamental reform of property taxation, lowering stamp duty and making the council tax more progressive.
Panicos Demetriades: I think fixing the Brexit deal and cutting red tape for businesses, which Labour promises to deliver, is the most straightforward way to boost growth in the medium term, although I would argue that to boost the UK’s long-term growth, the UK needs to rejoin the European Union. Anything else is a second best fix.
Joshi Dhaval: That’s easy! Simply to reopen free (or freer) trade with our largest and closest trading partner and largest economic bloc in the world — the European Union!
Noble Francis: The UK’s long-term growth prospects would be substantially improved if the government were to focus on consistent, stable, increases in capital investment in housing, infrastructure and Net Zero transition. In the near-term, this would clearly provide a direct economic stimulus but the key benefits of this would be long-term. Consistent improvements in housing, infrastructure and Net Zero transition enable growth across all industries of the economy over time. Furthermore, with the added certainty of commitment to consistent investment, it allows the private sector to also invest in the skills, capacity and digitalisation that add to growth long-term.
John Gieve: Relax planning constraints on house building and industrial construction including power generation and transmission.
Charles Goodhart: Put a major shift from income tax to land tax.
Andrew Goodwin: I would like to see government investment increased to 3 per cent of GDP. Investment in our infrastructure has been too low for too long, and taking steps to remedy this problem could have a noticeable impact on activity reasonably quickly.
Louise Hellem: Business investment is fundamental to increasing productivity and long term growth in the UK.
Greater certainty over the direction of long term government policy is needed to provide confidence for businesses to invest and crowd in more private investment into key areas.
This is particularly fundamental to ensure the UK seizes the opportunities on green growth. A net zero investment plan with ambitious but certain policy commitments, a competitive incentive regime and a delivery focused operating environment would ensure the UK continued to be a world leader in the net zero transition.
The UK also needs to create a long term cross departmental skills strategy, ensuring the UK labour market is future proofed, including greater adoption of technology and resetting the narrative on immigration.
Ethan Ilzetzki: Increases in public investments in education and infrastructure.
DeAnne Julius: Stronger central direction of land use planning for both infrastructure and housing development.
Saleheen Jumana: Economic theory suggests that the productivity of an economy can be enhanced via investments in people, capital, and how the two are combined. We are talking about investing in skills, education, machines, digital equipment as well as the transport infrastructure of the economy. In practice, however, there is a lot of uncertainty about what really drives productivity and the time horizon over which investment can influence productivity.
A consensus has built in recent years that the way to boost UK productivity is through public and private sector investment. If pushed to identify one single policy — for me that would be the promise that public investment in the UK would be around 3 per cent of GDP over the next few decades. My choice of policy comes from the evidence that UK public investment has been not only been low, but also much more volatile that our G7 counterparts. Bouts of famine and feast into public sector projects and services, create uncertainty about the future. That uncertainty deters the private sector from their own investment. It is only through stability and predictability of public policy can improve long-term productivity in the UK.
Cathal Kennedy: Planning reform, particularly around major infrastructure projects.
Barret Kupelian: If I was a policymaker, the policies I would opt for which would almost immediately boost UK growth would be to rejoin the EU (or the Single Market), boost immigration and drive a revolution in the housing market. But in democratic countries policymakers are elected into office by the electorate which means that policymakers are also politicians and need to cater to those who voted (and didn’t vote) for them. With this in mind, options one and two are currently not politically acceptable, so the only thing left is the third option. There are, of course, other issues to tackle that are now actively harming the UK’s economic outlook including reducing NHS waiting times (see our Golden Age Index report for example), ensuring appropriate funding for infrastructure (both existing and future), understand where the competitiveness gaps are in our economy vs our peers and fixing them. These will take a longer period of time to tackle. However, what businesses and households are after is a longer term, credible plan to tackle these issues recognising that it will take a relatively long period of time to fix these.
Tim Leunig: Planning reform — residential and infra.
Preston Llewellyn: Enunciation of a clear, simple, medium term vision for the UK economy, both its likely structure and its economic relations with the rest of the world, including most importantly Europe. Even though sections of the government dislike it, a clear industrial policy needs to be part of this, given the now fierce competition from other countries.
Gerard Lyons: Implementing credible and ambitious planning reforms to build more homes and business sites. Institutional change could also be explored, such as splitting HMT into growth and finance departments.
Christopher Martin: A large scale and sustained program of public investment.
Jack Meaning: More than any single policy measure, the key will be to ensure stability of policy and the policy environment. Frequent shifts in policy stances move the goalposts and discourage investors from making the long-term, beneficial decisions that are required to really boost the potential growth rate of the economy. If we want to see the type of investment that will enable us to meet net zero, raise living standards and meet the challenges of the next century, we need to provide a good bedrock for all of that economic potential to be built on.
Outside of setting up that stable environment, anything that allows the freer cross-border movement of labour will help to offset the skills mismatches and demographic trends in the UK labour market, which would boost the supply-side of the economy and allow growth without generating inflation.
David Meenagh: Cutting the main rate of corporation tax back to 19 per cent.
Costas Milas: The country needs political and economic policy stability. Since 2010, we had 5 different Prime Ministers and 7 different Chancellors of the Exchequer. How on earth can business investment (a prerequisite for robust long-term growth) thrive in such a politically ‘toxic’ environment?
Stephen Millard: I’m not sure it will happen but a marked increase in public investment would be the key policy change that could do most to boost long-run UK growth.
Andrew Mountford: The introduction of an annual tax on all land that is only paid when the land is sold, or its ownership transferred (or after say 50 years if this hasn’t happened). This tax would immediately add to the government’s balance sheet (as a share of an asset) but would impact the landowner only when they have liquidity to pay the tax (as it is being sold/transferred). I propose this every year and this question gives me the opportunity to argue for it once again!
This tax would have a significant impact because in contrast to other taxes for which there is a successful industry of tax avoidance- see the work of Paris School of Economics and Berkeley Professor Gabriel Zucman and co-authors for analysis of its extent — land cannot move and its ownership can easily be monitored by a Land Registry (which could insist on great transparency). The one obvious possible dodge is the transference of land between family members or parts of conglomerates at a very low price to reduce the tax burden. This could easily be dealt with by the complete and immediate transparency of transfer prices by the Land Registry together with the option for the government to purchase any land at the agreed price within, say, 60 days of the agreed price being registered. The government has deep pockets, infinite liquidity, and low borrowing costs and so this threat would be credible. Furthermore, this regulatory option would actually make money for the government upon the resale of the land if tax avoidance is occurring and the threat should only need to be carried out rarely to reduce this type of tax avoidance to low levels. The government agency responsible would clearly need to be independent and have strict rules about workers taking future positions with interested parties, as any well-functioning government institution should.
The tax would generate significant revenues. The ONS estimates the value of non-produced non-financial assets (almost entirely land) of over £6 Trillion in 2020. The value of GDP in 2020 was of a little more than £2.1 Trillion. Thus, an annual 1 per cent tax would be worth nearly 3 per cent of GDP. There is a long list of potentially productive public spending eg, public investment in energy/health/training/education/transport provision/legal system/defence. This tax could underpin a substantial increase in public spending on these.
Gulnur Muradoglu: Reduction in inflation and related reduction in interest rates.
Andrew Oswald: Raise the school leaving age and increase teachers’ pay. In the modern era, wealth comes from the clash of ideas from discussions among highly educated people working in teams. Wealth is no longer dug from far below the earth, pulled from the sea, or grown in fields. It comes from technical braininess.
Ipek Ozkardeskaya: Infrastructure investments.
David Page: We think that part of the problem of boosting the UK’s long-term growth outlook has involved trying to boil it down to a single policy. Long-term growth is a complex interaction of institutional confidence, physical and non-physical network interaction, constructive hubs and long-term human capital development, to name a few. Many of these factors have been degraded substantially in recent years and policies to boost long-term growth should be seen themselves over the longer-term. We should also recognise broad external constraints to policy. The budget outlook does leave the UK vulnerable and the UK would be well served with lower projected deficits and ultimately a reduced debt to GDP level. This should be a long-term goal. Fiscal tightening would also differ materially over the coming years compared to the 2010s with interest rates now in restrictive territory and hence able to provide some offset to any fiscal tightening. Moreover, fiscal tightening need not mean spending cuts, but should include rebalancing taxation towards economic ‘bads’, which should include emissions and potentially other health harmful products including sugar, and non-productive areas, plausibly reconsidering increasing IHT and land taxes.
John Philpott: Massive public sector investment in vocational education and life-long learning.
Kallum Pickering: To end the needless interference in the market. Contrary to widespread opinion, the UK economy does not need a major policy overhaul. Instead, it needs an extended period of stable, calm politics that avoids Truss-style market shocks or the kind of damaging uncertainty which Brexit caused. The UK remains a fundamentally healthy economy. Banks are well-capitalised. Businesses and households enjoy high cash balances and manageable levels of debt. Employment is high and labour markets are flexible. Credible institutions and (mostly) well set regulations support competition. These are the main ingredients for sustainable growth. However, the UK has suffered badly from a series of global and domestic supply shocks which have weakened potential growth. To lift potential growth, the UK needs a long period of private business investment to raise labour productivity. For that to happen, businesses need to be confident that the future government will not take needless risks.
Ian Plenderleith: Severe pruning of planning restrictions.
Richard Portes: No single one! Serious planning reforms. Terminating HS2, using funds for other infrastructure investment. Reversing immigration restrictions. Focusing on comparative (indeed absolute) advantage in cultural and educational exports.
Jonathan Portes: Building more houses, along with the necessary public infrastructure (transport, energy supply, water), especially in high-demand/high-productivity areas.
Adam Posen: Public investment in transportation and health infrastructure.
Close second — deep integration of university and public sector R&D into EU and US networks, with money to back it.
Lydia Prieg: We need a proper investment strategy to make our country more prosperous: investment in renewables and home insulation to get energy bills down, investment in green industry and infrastructure to boost growth and wages, and investment in the NHS, social security and schools so that healthy, well-educated adults can fill and maintain good jobs.
Vicky Pryce: Long term: Improving trade relations with Europe, so reducing costs to businesses in trading and competition which has been constraining investment, innovation and hence productivity and economic growth.
Short term: cut in interest rates.
Thomas Pugh: Significant reform of the planning system. The UK will struggle to increase the government and business investment so desperately needed while a defunct planning system keeps costs an order of magnitude above peer countries.
Sanjay Raja: There is no one single policy that can dramatically change the growth trajectory for the UK. It will ultimately come down to a plethora of factors that drive long term potential growth higher.
A long term productivity agenda. There has been a lot of chat recently around establishing a Productivity Board. We would fully endorse this. A long term plan to drive productivity through a cohesive strategy that compliments an industrial strategy we think is a necessary condition for higher potential growth.
As part of the above, we would also focus on three things: a long-term infrastructure plan (that helps accelerate the UK’s path to net zero), a genuine levelling up strategy (that sufficiently affords devolution and appropriate decentralisation to regions across the country, including policies aimed at building institutional and social capital) and a program to boost skills (both technical and tertiary) that equips future generations to deal with changing demand and supply dynamics in the global economy. A better set of fiscal rules, we think, could also help achieve some of these goals by prioritising the long term future of the country.
Finally, on trade, as an open economy, the UK must seek to improve trade terms with its closest neighbours. A reduction in non-tariff barriers with the EU could be the first important step to increasing trade access, FDI, and ultimately productive growth in the UK’s services and manufacturing sectors.
Andrew Reeve: Stop taxing investment. Corporation tax is a tax on investment not on shareholders, corporation tax revenue should be reduced to zero. The best way would be a 40 per cent cash credit on all tangible investment, not just equipment, with no reduction in future allowances for depreciation. Ie not accelerated depreciation.
Ricardo Reis: There are no silver bullets. I am more worried about some fairly bad ideas that one hears in the run-up to an election that would reduce growth, from some radical reforms to the private-public mix in education, increases in taxes, and more regulations to protect incumbents and landowners from competition. But, to be more positive, I would say a mix of public investment in education and health, together with removing regulations (like university tuition caps) to bring in market forces.
Matthew Ryan: Elevated household energy bills remain a big obstacle for the UK economy. A long-term plan to lower energy costs for families, perhaps through investing in cleaner homegrown power, would provide a much-needed boost, in our view.
Michael Saunders: Which single policy change after the next election would do most to boost the UK’s long-term growth? Rejoin the EU. Failing that, make higher potential growth the core mission of government and bring in genuine external expertise. This would pave the way for higher public investment, increased spending on education and childcare, reform of the planning system.
Yael Selfin: There is no one magic formula to fix UK long term economic growth, a clear plan focusing on long term investment in growth areas such as technology as well as reaching net zero will help align investment as well as remove policy uncertainty for businesses.
Andrew Sentance: Sustained investment in transport infrastructure in public and private sectors.
Almudena Sevilla: climate policy.
Philip Shaw: The precise reasons for the UK’s woeful rate of productivity growth since the Global Financial Crisis are little clearer than a decade ago. As such, it seems unrealistic to expect a single policy to provide a ‘silver bullet’ solution. Infrastructure improvements (transport, ultrafast broadband etc) though are obvious candidates which may help, although the benefits from polices such as these take time to show through. Additionally, continued policies to encourage business investment should help labour productivity. Labour shortages have dogged the British and other economies since the end of the pandemic and incentives to get people back into the labour force and also to ease skills mismatches are required as well. How this is done eg via retraining, immigration etc is clearly a highly charged political issue but it needs to be properly debated and a rational solution found. Over the medium-term AI may provide the same sort of boost to productivity as the online revolution towards the tail-end of the 1990s.
Andrew Simms: This is simply the wrong question. Anyone with an interest in averting the collapse of the economy’s ultimate owner, the biosphere, would be asking which single policy after the next election would create an economy with the highest wellbeing and the lowest impact on climate and nature.
The answer to that question is a Green New Deal designed to reverse inequality and shift from an extractive to a regenerative economic system. Obviously, no one policy can do everything but public investment in future proofing the UK, such as with a massive home retrofit programme, in such a way that you create good green jobs, reduce dependence on fossil fuels, make healthier homes, and lower heating and cooling costs is a very good start. Moving to a shorter working week, underpinned by better child care and measures to tackle the affordability of housing by protecting the market from speculative pressures and excessive rent-seeking would also raise wellbeing, and help to break the work and spend cycle that locks in overconsumption. Of course, to achieve many of these things in the UK, electoral reform is probably needed to break the log-jam of the two-party system, it’s timidity around necessary, urgent action on climate breakdown and inequality, and to allow for a more fresh, representative and accountable politics.
Nina Skero: Cebr’s modelling work suggests that lowering the rate of corporation tax has a particularly significant impact on long-term growth. We find that cutting the rate of corporation tax to 19 per cent results in a boost of 2.4 per cent to GDP per capita by 2043, relative to the baseline case of keeping corporation tax at 25 per cent.
James Smith (Resolution Foundation): What is required to halt the UK’s period of relative decline is a renewed economic strategy. Such a strategy needs to recognise that we are a services superpower and boosting services growth in our second cities will benefit their wider regions; focus on increasing investment rather than living off our past; shift the rising tax burden from workers to wealth; and share the rewards of growth. Here’s how. One single policy to get us started on this would be to reverse the major cut in public investment pencilled in for the next parliament.
Alfie Stirling: Increased inward migration.
Susannah Streeter: Don’t stay so fixated about ‘fiscal rules’ and use OBR guidance to assess which infrastructure investments would provide long-term benefits to economic growth and fund such projects with matched public/private sector investment.
Gary Styles: Special relief for committed investment in infrastructure and environmental projects will do most to enhance long term growth and productivity. This needs to be spread across the whole country to maximise the benefits for the UK economy.
Suren Thiru: Rather than a single policy change, the next government needs to have a laser-like focus on fundamental supply side reform to raise the UK’s potential output. Failure to achieve this would leave the UK more exposed to future economic shocks and living standards will remain constrained.
Interventions could include establishing a National Supply Side Commission, an independent agency to assess the supply side problems holding back UK potential output, make policy proposals and track government progress on these issues.
Phil Thornton: Set out a plan for public investments and day-to-day spending needed to deliver high-quality public services by the end of the first term.
Samuel Tombs: Rejoining the EU’s single market would support long-term growth by removing trade barriers, alleviating labour shortages and boosting foreign direct investment. But the main political parties have no appetite for this step, even though polls show a majority of people recognise Brexit was a costly mistake. So it is more realistic to hope for policies that will increase labour market participation. The UK already has a relatively high participation rate by international standards, but extra childcare funding and tax incentives for people who work beyond state retirement age could raise it even further within the lifetime of the next parliament.
Anna Valero: There isn’t really a silver bullet when it comes to boosting the UK’s productivity performance. Instead, the UK needs a range of reforms to increase productive, sustainable investment and a focus on long-term value creation in firms; to increase public investment and reduce its volatility; and ensure that the right skills are in place to support strategic sectors and technologies — as set out in the Economy 2030 Inquiry. Growth and productivity policies and investment choices need to be evidence-based, co-ordinated as part of an overarching strategy (across government departments and levels of government) and lasting. A new independent growth institution could help achieve those goals, facilitating the politics of making difficult long-term decisions.
In terms of a single policy change? The OBR considers that Brexit will reduce productivity by around 4 per cent relative to remaining in the EU. Improving our trade deal with the EU could therefore be a single policy change with a material impact on the UK’s growth prospects.
Bart Van ark: There is unlikely to be a single policy change that can make that happen. Britain needs a new growth and productivity strategy and that requires a package of measures. Having said that a good starting point would be to adjust the fiscal rules such that the public sector can be recapitalised and by taking a longer-term horizon regarding the decline in public debt.
John Van Reenen: Establishing a Growth institution at the centre of government to pull together key departments and provide stability for long-term plans on investment. UK problems are linked to endemic policy churn and uncertainty and a short-termist attitude to public investment. See here.
Sushil Wadhwani: Radical action is necessary to stimulate growth. I would recommend wide-reaching tax reform that would combine a land tax with reductions in taxes on income and capital gains. One would thereby encourage people to work and invest.
Ross Walker: A commitment (or at least a signal of intent) to re-join the EU.
Martin Weale: Easing planning laws.
Matt Whittaker: The establishment of a strategy for growth that is in some way detached from the day-to-day vagaries of politics, providing the country with a clear sense of direction and the stability required to restart investment in the future.
Michael Wickens: Growth depends primarily on private investment. Policy should aim to give more incentives for this such as cutting capital gains tax instead of raising it.
Tomasz Wieladek: The most important change that can be made is a liberalisation of the UK’s planning regime. A wide-ranging deregulation of the planning system could easily boost the potential growth rate by 0.5-1 per cent in the medium term. At the same time, this expansion of the supply side would lower costs, encourage worker mobility and therefore help to lower wage and price inflation in the medium term. Finally, because of these supply side effects, interest rates, including on government debt, will probably decline, reducing the cost of government finance meaningfully.
Trevor Williams: Reform of planning, both residential and commercial
Tony Yates: Rejoining the EU either de jure or de facto. Costs almost nothing. Guaranteed to work. After that, building on the encouraging improvements in school standards by paying teachers properly to fill vacancies, and repairing school buildings.
Linda Yueh: Investment in human, digital, physical and green capital that can raise productivity and therefore long-term growth. The UK lags behind other major economies in business investment, so investing in those areas could “crowd in” private investment so long as there’s also less policy uncertainty and greater clarity about the UK’s strategic growth aims.
Azad Zangana: The poor state of the NHS has been having a detrimental impact on the participation of workers in the labour force. Reversing the sharp rise in waiting lists for treatments could help raise the labour participation rate, and boost the number of available workers, raising growth, but also lowering inflation.
Is there anything else you would like to tell us?
Alexandrovich Marchel and David Owen: 2024 will probably bring with it an increasing focus on the policy choices post election, and how best to address climate change.
Kate Barker: You should have defined some of the above variables better!
David Bell: There are a number of potential disrupters to my scenario — continuation and extension of the middle-east war; collapse of Ukraine’s war effort; election of Trump after he has been convicted on some criminal charge.
Nick Bosanquet: In Yorkshire some signs of supply side recovery . . . stable firms with reserves investing in new developments/acquisitions. Move projected by ONS of 1m (mainly families} out of London into spaces between the cities is also positive. Many houses in the Midlands are on the market for £300K or less. Market forces could level up where the government has failed. Short term — higher tax on key staff, higher costs and lower demand will continue to decline . . . but some supply side positives for 2025. Also positive is that the era of large central projects and heavy subsidies is over as a result of debt costs. Value delivered improves with smaller projects.
Erik Britton: Annual per cent change in GDP is likely to be a small negative in Q4 of 2024.
Jagjit Chadha: We need careful and well-directed nurturing of the economy. No big bangs or quick fixes. Just patient interventions to support the green transition, digital rollout and much-needed infrastructure improvement. A sustained period of calm and focused government fixing limpet-like on these objectives would be very welcome.
David Cobham: It is going to take a long time to sort out the mess of the last few years (since 2010). If only we could feel more positive, more optimistic.
Diane Coyle: The macroeconomic outcomes depend on the microeconomic basics. Mrs Thatcher understood this, whatever you think about her record overall.
Panicos Demetriades: Very good questions!
Charles Goodhart: Inflation will rise again in 2025.
Saleheen Jumana: Vanguard calls for a return to sound money — a persistence of positive real interest rates. We expect interest rates in the UK, and globally, to recede from their cyclical peaks in 2024; but we do not expect rates to return to the lows that we have become used to. Zero rates are yesterday’s news. We see nominal interest rates settling at around 3 per cent to 3.5 per cent once inflation returns to target and output to trend.
A return to sound money is a code word for higher investment returns, given higher interest rates and the power of compounding. Sound money is good news for savers and diversified investors. It is the single best financial market development over the past two decades.
Barret Kupelian: The international landscape will be increasingly important for the UK. The Megatrends we are seeing in the global economy show us that change is happening in faster and more unpredictable ways. I think there is still a longing that will go back to the ways the global economy operated at the end of the 20th century/beginning of the 21st century — this type of thinking is an elusive dream. The businesses that recognise this and adapt accordingly will be the ones that will win.
Tim Leunig: Some of these qs are hard to answer because they are not clear — eg is wage growth real or nominal? Better off at the election compared with when?
Preston Llewellyn: The UK has lost its way. The political focus is almost exclusively on demand-side policies. But most of the UK’s problems — including importantly low productivity, and behind that low investment — lie on the supply side. The UK urgently needs to direct policy reform to the supply side and, to make it acceptable, it needs at the same time to help and retrain those who are damaged by the process.
Christopher Martin: The UK is suffering from a persistent lack of investment in physical infrastructure and skills. Fixing this requires sustained investment. This may be politically difficult and be slow to show results. But without it, the UK will continue to decline.
Jack Meaning: As well as macro and political developments, next year has the added intrigue of how markets will react to significant changes in liquidity. As QT continues and the Bank of England’s TFSME rolls off, we could be looking at over £150bn reduction in reserves in the system in 2024.
Costas Milas: A “Black Swan Event” might upset my GDP growth forecasts for 2024: What I have in mind is not the Middle East conflict. Rather, (economic) policy uncertainty related to the timing of the general election. The longer it takes for the government to set the date of the general election and the longer Conservatives are tearing themselves apart, the less likely the business sector will invest and, consequently, the bigger the hit to the UK economy.
Andrew Mountford: Yes — you really shouldn’t be asking for point estimates in your questionnaires. Point estimates may potentially be very misleading. Eg, if a respondent has a very large confidence band then simply reporting a central point of the band will be misleadingly indicating that the respondent thinks that an indicator eg inflation, is going to, say, fall when really the respondent is unsure whether inflation will fall or rise. I did answer the questionnaire, but all my responses have this caveat and so should really have an asterisk!
This issue is well known and accepted in academic writing but also in some financial publications eg the Bank of England has produced confidence bands for output unemployment and inflation for many years in its policy reports. It also explains the major uncertainties in its estimates for the following period (oil and gas prices, labour market adjustment speeds etc . . .). For example, in the current Bank of England Monetary Policy Report — November 2023 — their fan chart indicates that they think there is a 10 per cent chance that by the end of 2024, inflation will be either greater than 6 per cent or negative. I think the discussion of the thinking behind the confidence bands in the report is excellent and they obviously know the data better than me. However, I think the near symmetry of the confidence bands around the central area of the distribution is very counter-intuitive, especially for inflation. I’d have thought that the chances of a negative inflation rate at the end of 2024 is very low. In contrast, inflation of 6 per cent seems not too unlikely given the possible short term shocks (War escalation — Ukraine, Near East, Far East — climate shocks to key resources etc.).
Andrew Oswald: It is sensible to remember that humans are deeply prone to loss aversion. Especially in the public sector, the real-pay cuts experienced over the past two years will have a long reach into future bitterness and consequences.
Richard Portes: I am not now and have never been a macro forecaster!
Jonathan Portes: The “cost of living crisis”, from which we may now be emerging, has overshadowed the UK’s longer-term structural problems — slow growth in productivity and living standards, failure to build houses or to invest in public infrastructure, and public services which have been steadily deteriorating for years but are now on the verge of collapse in some areas as a result of austerity, under-investment and mismanagement. All this has been further exacerbated by government which — to be kind — appears to prioritise very narrow short-term politics over the long-term interests of the country. Reversing this will require a combination of competence, long-term thinking and political will — for example, planning reform that enables us to build more houses, and meaningful tax reform that will enable us to fund decent quality public services.
Andrew Reeve: No — higher growth is the priority for policy over everything else. This is easily achieved by ending the tax on investment.
Andrew Simms: Last year was again the hottest on record. The latest scientific research points to the economy breaching numerous planetary tipping points with irreversible impacts on natural systems underpinning human livelihoods. It is time for both the economy’s performance and its prospects to be assessed in this light.
Alfie Stirling: The answers for wages and GDP above have assumed real terms, as opposed to nominal, growth.
Bart Van ark: GDP growth in 2024 will continue to be driven primarily by employment growth (about 0.4 per cent) rather than productivity growth (0.3 per cent). This balance needs to change to at least double productivity to get out of the stagflationary trap. Increased investment supported by a more stable economic environment and rising demand (domestically and internationally) will have to be the key drivers of that.
John Van Reenen: I am assuming the answers to question 4 are all nominal terms (not real).
Sushil Wadhwani: If I am allowed further measures to help with growth, I would recommend an increase in public investment, a closer trading relationship with Europe and a bonfire of many planning restrictions.
Michael Wickens: Macro policy has been poor in recent years. This is probably because HMT has transferred macro analysis to the Bank and forecasting to the OBR. HMT is just left with budgetary matters: tax and spending.
Trevor Williams: Watch money supply growth. If M4 growth remains negative for the whole year, UK price deflation will turn to deflation in 2025, and little recovery in growth is likely.
Tony Yates: There’s a lot of uncertainty emanating from UK politics at the moment, with the tensions within the Conservative party, the prospect of an election and what the Government will do during what would be a difficult campaign starting out with poor polling. This will not be good for the economy.
Linda Yueh: 2024 will see a number of consequential elections, so it is likely to be a year characterised by more geoeconomics whereby economics will be impacted by geopolitics that will follow from post-election policies.
Azad Zangana: We are concerned about the vulnerability of the UK Gilt market. When including net sales from the BoE, the supply hitting the market in 2024 will be very large, making the Spring Budget potentially a risky event if the Chancellor decides to offer large fiscal giveaways ahead of the election.
Source: Economy - ft.com
