UK economic growth ‘robust’ in 2024, think tank says

A recent report from a prominent think tank has placed the UK among the top-performing economies in a group of wealthy nations, predicting it will experience the joint-second highest economic growth rate for 2024. The UK’s economy is now expected to grow by 1.1%, a figure that matches the forecasts for both Canada and France, although it still lags behind the United States.

This marks a significant revision from the Organisation for Economic Co-operation and Development’s (OECD) previous growth estimate of just 0.4% for the UK, which was made back in May. Chancellor of the Exchequer Rachel Reeves has welcomed the revised figures, seeing them as an opportunity to promote a more optimistic narrative in her upcoming speech at the Labour Conference. She faces the challenge of balancing realistic expectations ahead of next month’s Budget while aiming to foster an environment that encourages investment.

“Next month’s Budget will be about fixing the foundations so we can deliver on the promise of change and rebuild Britain,” Reeves stated, highlighting the dual focus on recovery and long-term improvement.

Investment analyst Dan Coatsworth from AJ Bell pointed to several factors contributing to the UK’s improved economic outlook. He noted public sector wage increases, the resolution of train strikes, and a more stable political environment following July’s general election as potential influences on the positive projections. Additionally, the recent interest rate cut by the Bank of England in August is expected to further support the economy by lowering borrowing costs.

The OECD has described the economic growth in the UK as “relatively robust,” but it also issued a warning about ongoing risks. The organization noted that persistent geopolitical tensions and trade disputes could negatively impact investment and drive up import prices, posing a threat to the recovery.

Despite the optimistic forecasts for 2024, the outlook for 2025 is less rosy, with the UK projected to have the joint-fourth fastest growth rate at 1.2%, only ahead of Germany and Italy. Furthermore, consumer prices in the UK are expected to rise at a faster pace than those in other G7 countries, with inflation rates estimated at 2.7% this year and 2.4% next year.

The OECD releases its economic forecasts biannually, providing a guide for future economic trends, though these predictions are subject to change. Businesses often use these estimates for planning investments, while governments rely on them to shape policy decisions.

Alvaro Pereira, the OECD’s chief economist, emphasized the importance of creating “fiscal space” for increased investments in infrastructure, particularly regarding the transition to green energy. In light of this, Chancellor Reeves has suggested she may consider adjusting the debt targets set under her fiscal rules. These self-imposed rules aim to maintain credibility with financial markets and require the government to manage its borrowing within a five-year timeframe. However, Reeves has hinted that she might seek greater flexibility in tax and spending plans for the upcoming budget.

The OECD has recommended a carefully measured reduction in interest rates along with decisive actions to manage debt levels, which would enable governments to respond effectively to future economic shocks. Strengthening government spending controls and enhancing revenue generation were identified as key strategies for stabilizing debt burdens.

Many developed nations are grappling with challenges such as aging populations, climate change, and increased defense spending, all of which have been exacerbated by the financial crisis that began 16 years ago and the recent COVID-19 pandemic. This has led to higher levels of government borrowing and mounting debt.

However, not all economists agree that reducing debt should be the foremost priority. Some argue that increasing borrowing in the short term could stimulate growth, ultimately leading to lower debt levels in the long run. This debate highlights the complexity of economic policy, where different schools of thought advocate for varying approaches to achieve sustainable growth and financial stability.

In summary, while the UK’s economic growth forecast for 2024 is encouraging, significant challenges remain. Balancing growth, inflation, and fiscal responsibility will be critical as the government prepares for its next steps in shaping the country’s economic future.