Life in UK economy yet –but it must be nurtured

The economic outlook for 2024 and 2025 is slightly better than previously expected, according to the British Chambers of Commerce quarterly economic forecast – but there’s no upgrade to its prediction for 2026.

The BCC’s analysis says that although the UK economy is likely to continue its recovery after the short recession at the end of 2023, long-term growth is unlikely to be strong.

Vicky Pryce, Chair of the BCC Economic Advisory Council, said: “The BCC’s latest forecast shows there is life in the UK economy but if it is to gain momentum then it must be nurtured.

“With interest rates expected to be cut at a modest pace and pay outstripping inflation, businesses will be holding on to much of their money – even as confidence rises after the mini-recession.”

The BCC’s predictions for 2024 and 2025 GDP growth have been revised upwards for the second forecast running by 0.3 per cent respectively, to 0.8 per cent and 1.0 per cent respectively, with 2026 remaining at 1.0 per cent due to global headwinds, interest rates falling only slowly, and consumer spending not growing quickly.

A poor outlook for exports continues to be a drag, with high interest rates continuing to limit investment, meaning the overall profile remains flat. BCC surveys continue to show that most small and medium-sized businesses aren’t increasing their investment.

According to the BCC’s forecast, the outlook for trade remains weak, with this holding the economy back – with both imports and exports expected to be down in 2024 by 1.9 per cent and 1.7 per cent respectively. These are projected to gradually bounce back in 2025 and 2026.

The BCC also predicts that average earnings are expected to continue to grow more strongly than inflation, that the Bank of England interest rate will be cut more cautiously, and that the rate of unemployment will be slightly higher than previously expected – though the labour market will remain tight due to difficulty finding skilled staff and coping with long-term sicknesses.

The BCC predicts the interest rate to be cut to 4.75 per cent by the end of this year, then 4.35 per cent by the end of 2025, and 3.95 per cent by the end of 2026 – which would still be far above the average for the previous decade.

David Bharier, the Chambers’ Head of Research, said:

“With an upgrade to GDP expectations, our forecast expects the UK economy to be edging towards slightly higher growth rates. With the recession of 2023 concluded and interest rate cuts now expected later in 2024, the environment should become more stable for SMEs to invest. However, the margins are slim, and any further shocks could easily dent this recovery.”