UK Economic Outlook 2024‑2025: A Sluggish Recovery
The CBI Economic Forecast tells the truth: the UK economy is slowly warming up, but the fire is far from blazing. Growth rates for 2024 and 2025 have slipped a touch from last summer’s predictions, and the good news is that household spending remains the trusty engine keeping the engine running.
Key Numbers at a Glance
- 2024 GDP growth: 0.9% (down from 1.0% in June)
- 2025 GDP growth: 1.6% (down from 1.9% in June)
- 2026 GDP growth: projected 1.5%
Consumer spending is expected to rise, but tips less sharply this year because real incomes are pulling a gentle pace.
Why the Softer Confidence?
Two main culprits are sap feeding the economy:
- Higher employment costs imposed by the Autumn Budget
- “Crowding out” of private sector activity, as the government’s fiscal tightening rolls in
Business investment, while still on the uptrend, feels the squeeze. Companies are stretching their budgets, wary of bumping up costs and chipping away at profit margins.
Productivity Woes
Output per worker remains a sticky issue—little ahead of the sluggish pre‑pandemic trend. Without a serious lift in productivity, growth will continue to feel a bit clumsy.
CBI’s Take: A Call to Action
Louise Hellem, the CBI Chief Economist, characterizes the outlook as follows:
“The government’s focus on stability is a good signal to businesses. Yet, consumers and enterprises are still feeling the squeeze. We need concrete steps to lift momentum.”
“Autumn Budget measures raise firm costs just when profit margins are already on the hook. Businesses warn that these changes will likely push up prices and slow hiring and investing.”
“To give firms a breathing room, the government can act catalytically—fast‑track business rate reforms, give instant leeway on the apprenticeship levy, sprinkle tech adoption boosters, and roll out occupational health perks. These moves could help relieve the many challenges that companies face.”
“Our Blueprint for Competitiveness suggests that a modern Industrial Strategy, drawing on the UK’s national assets—innovation, regulation, and skills—can spark sustainable growth.”
Bottom Line
It’s a small, steady gain—like a snail on a smooth day. The forecast points to a modest but resilient increase in GDP driven largely by household spending. The real tweak will come if the government shortcuts some of the current fiscal tightening and injects a dose of confidence into businesses.
Consumer spending remains modest as incomes growth slows
Households, the Heartbeat of the Economy (and the Couch Potato’s Power)
When economists talk about GDP growth, they often say it’s all about what people buy. That’s right—your grocery receipts and those late-night mints are the engine that keeps the wheel turning. In our latest reading, the steady march of GDP will be powered mainly by household spend.
What the Numbers Say (and Why You Might Notice It)
- 2025 Consumer Spending: It’s a bit slower than the June forecast—think of it as a gentle drizzle instead of a full‑flood.
- 2026 Outlook: The trend dips further, but not by much—like a tailwind that’s a little less electric.
Why the slowdown? The culprit is twofold: real incomes are growing at a sluggish pace and inflation is hanging around the 2% mark—and no, not the sweet spot the Bank’s aiming for. When prices stay high, spending gets a bit cautious, which in turn keeps GDP’s rhythm from picking up a sprint.
Bottom Line: Keep Your Budget in Check
So if you’re budgeting to match a 2% target, stay aware that your mailbox and bank account might feel the pinch. It’s all part of the larger narrative of the economy growing at a decent, but not blazing, speed.
Business investment weighed down by Budget measures
Business Investment Outlook for 2025‑26
Heads up, folks! Business investment is looking like a bright, uphill run in 2025, thanks to a bump in GDP. But when we flip the calendar to 2026, the pace kicks a lazy
step and just slows a tad.
What the Numbers Say (and What’s Those Numbers For)
- 2025 Forecast: A robust climb, fueled by the healthy economy.
- 2026 Outlook: A slight juggle, with the projected growth pulling around £6 bn below the pre‑Budget tease.
- Why the dip? Two big culprits:
- Higher employment costs — firms are paying more for staff.
- Crowding out from government investment — the state’s spending hogs some of the available capital.
So, while the general vibe remains hopeful, investors should brace for a bit of a chill wind in 2026. Keep your spreadsheets handy and your optimism tuned — it’s a bumpy but still interesting ride.
Inflation expected to remain above the Bank’s target through 2026
Inflation is on the Rise: What You’ll Feel in the Coming Years
Hey there, folks! If you’ve been keeping an eye on those coffee‑price charts, you’ll notice that inflation is looking to go on a little sprint as we slide into the last quarter of 2024. The Bank of England’s 2% target might feel like that hair‑do you want on a hot day – a bit too cool, but let’s dig into what’s actually happening.
Why the Numbers Are Skewing Upwards
- Budget Moves Bite Harder – Key spending and tax changes are now echoing through the wallet, especially in the hospitality and retail arenas. Think smaller coffee cups and more boutique tees.
- Sticky Supply Chains – With shipping delays and energy hiccups, the costs of raw materials keep rolling up the price tag.
- Consumer Demand Keeps in Motion – People still want those gadgets and gourmet snacks; that steady demand keeps the bells and whistles of inflation ringing.
Forecast Breakdown
Our latest numbers suggest you’ll see inflation hovering at about 2.6% in 2025 and trimming down just a touch to 2.5% in 2026. While those figures stay above the Bank’s sweet spot, they’re not by a massive margin – just enough to tweak your budgeting game.
Bottom Line
So, come 2024‑Q4 and beyond, brace yourself for a tiny bump in your everyday spend. But hey, a little extra change can still go a long way—just maybe pack a coffee bag a bit thicker this year.
Bank Rate projected to be reduced to 3.5% by 2026
Crunching the Numbers: Why Rate Cuts Are Taking It Slow
The first challenge on the horizon is inflation that’s sticking around. Instead of a quick sprint, the Monetary Policy Committee (MPC) is opting for a more gradual jog toward easing interest rates.
Step‑by‑Step Approach
- Each quarter, the Bank Rate will dip by a modest 25 basis points.
- That steady pace is aimed at nudging the rate down to a terminal threshold of 3.5% by the first quarter of 2026.
- Until then, the MPC’s stance will be a tad on the restrictive side, keeping an eye on the middle‑term inflation targets.
Why the Slow Roll?
Think of it like trying to untangle a stubborn knot. A muscle-up price surge deserves a measured, steady hand rather than a reckless yank. The committee is tightening the dial quietly, ensuring the economy doesn’t get jolted into a recession.
All In All
In short, the MPC is choosing a careful path—cutting rates a little at a time, staying restrictive enough to bring inflation down, but not so quickly that it tips the economy off-course.
Higher employment costs will weigh on firms’ hiring plans
CBI Jobs Update: Why Hiring’s on a Slow‑down
Key Takeaways
- Hiring Intentions Dipped Big Time – The CBI’s latest surveys show that, right after the Autumn Budget, firms are less eager to bring new staff on board.
- Private‑Sector Hiring May Snap Back – The announced measures are expected to chill the way private companies add employees, making the future job‑market a bit tighter than our earlier forecast.
- Self‑Employment to Shine – With fewer corporate hires, we anticipate a stronger rise in jobs created by freelancers and gig‑workers.
- Unemployment Remains Low – Even amidst the slowdown, the unemployment rate will stay comfortably below historical averages.
- Wage Growth Takes a Bumpy Ride – By 2026, pay raises are likely to ease, pulled down by higher labour costs, stagnant productivity, a touch of market slack, and the way inflation expectations settle back to normal.
In short, the job market isn’t crumbling, but it’s definitely shifting gears. Keep your eyes on the self‑employed boom and be ready for a gentler wage climb.
Marginal potential impact from higher US trade tariffs
UK’s Trade Doors: What Could Happen if the US Imposes Tariffs?
Picture This
Think of a busy UK market square where goods move smoothly between the UK, the US, China, and the EU. If the US suddenly sprinkles a 10% tariff dust over everything that comes from the UK, it’s like someone putting a price tag on a favorite piece of clothing—only the price tag is a bit more alarming for the people buying it.
The Forecast’s Low‑Risk View
Under most football‑style predictions, the UK manages to dodge extra US tariffs that might be slapped on imports from China or the EU under a new Trump‑era windfall. Even in the worst‑case scenario where the US pounces on 10% global tariffs and the UK balances the cards with a matching percentage, the damage to the UK economy and inflation is still expected to stay as thin as a croissant crust.
Key Takeaways
- Minimal GDP hit: The projected dip in UK GDP is unlikely to break anything significant—just a shallow dip in the ocean.
- Inflation stays calm: The price levels won’t surge; imagine a calm market rather than a stampede.
- Strategic flexibility: The UK can keep trading partners and keep its market door open, akin to a savvy shopkeeper who knows how to weather a storm.
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