The UK economy is bracing for a challenging year ahead, according to a recent Financial Times survey of leading economists. Despite some positive indicators, such as higher wages, the general consensus points towards a period of economic difficulty for the United Kingdom. Experts predict that the ongoing cost of living crisis, combined with other economic factors, will lead to an uneven and potentially gloomy year for the UK’s economy.
The survey, which gathered insights from 90 top UK-based economists, suggests that despite a predicted fall in inflation, UK voters are unlikely to feel a significant improvement in their living standards before the next general election. The persistently high prices, a consequence of the previous inflation surge, mean that even a partial increase in wages in 2024 is unlikely to alleviate the “grey gloom” that many UK citizens are experiencing.
The Uneven Impact on UK Households
The economic outlook for the UK is set to be unevenly distributed among its population. While there is a silver lining for people on low pay, who will benefit from a substantial rise in the minimum wage, and pensioners, who will continue to enjoy good savings rates, others are not as fortunate. Renters and approximately 1.5 to 2 million households renewing mortgages are expected to face significantly higher costs. This divergence in economic fortunes is expected to replace the broad cost of living squeeze experienced over the last 18 months.
Matt Whittaker, head of the charity Pro Bono Economics, emphasized the impending divide, where some households may start to recover financially, while others continue to struggle. This fragmented recovery pattern paints a complex picture of the UK’s economic landscape as it moves through 2024.
Stagnant Growth and Rising Challenges
The overall growth of the UK’s economy is another cause for concern. Almost all respondents to the Financial Times survey anticipate either stagnant growth or a meager increase of up to 0.5% in 2024. However, the brighter side includes the expectation that the worst problem of 2023, inflation, should start to recede.
Chancellor Jeremy Hunt has expressed optimism about the UK economy, expecting 2024 to be the year the UK “throws off our pessimism and declinism.” This optimism is backed by the introduction of national insurance tax cuts and potential further tax cuts in the March Budget. However, experts warn that there might not be enough time, even if Prime Minister Rishi Sunak delays the election until January 2025, to fully repair the damage to living standards incurred in recent years.
Economists predict that while real wages may rise, other factors such as increasing unemployment, the tax burden, and rising rents and mortgage interest rates will counteract any potential ‘feelgood factor’ ahead of the election. These conditions are expected to lead to stagnant living standards for most UK citizens over the lifetime of the Parliament.
Despite recent encouraging data, most respondents to the survey believe that inflation will fall to a “reasonable” or “acceptable” level by the end of 2024, with the Bank of England’s 2% target being close but not yet achieved. The expectation is that the Bank of England will only gradually cut interest rates from mid-year, with markets anticipating a reduction from 5.25% to 3.75% by the year’s end.
The survey respondents highlighted individual fortunes varying more over the year ahead than in 2023. Homeowners, lower-paid employees, and pensioners with significant savings are likely to be in a better position, while renters signing new contracts and households renewing fixed-rate mortgages may face tougher times. The end of state support for energy bills in March and rising tax burdens due to frozen income tax thresholds are additional factors contributing to the bleak outlook.
So, the UK’s economic forecast for 2024 is clouded with uncertainty and challenges. While there are pockets of optimism, the overall picture is one of slow growth, rising living costs, and a potential increase in unemployment. The nation’s economic stability will hinge on a myriad of factors, including government policies, inflation rates, and the global economic climate. As the UK navigates these turbulent waters, the need for strategic economic planning and resilient policies has never been more crucial.
