Subdued growth in a challenging fiscal landscape
Think tank: National Institute of Economic and Social Research (NIESR)
Author(s): Various authors
November 6, 2024
This report from UK think tank National Institute of Economic and Social Research examines subdued growth in a challenging fiscal landscape.
Despite a strong start for economic growth in the first half of the year, we anticipate that UK GDP growth is likely to remain around its trend rate of 1 per cent over 2024 as a whole.
Looking ahead, we expect growth of 1.2 per cent in 2025 and 1.4 per cent in 2026 as the spending measures announced in the budget lead to an expansion of demand. With inflation likely to exceed 3 per cent at the beginning of 2025 and remain above target throughout the first half of the year before coming down again, we anticipate a slightly slower unwinding of monetary policy and, after yesterday’s 25 basis point drop in interest rates we expect an additional three rate cuts in 2025 of equal magnitude. Over the medium run we expect the base rate to settle at around 3.25 per cent.
We expect aggregate real personal disposable income to grow in 2024-25 and 2025-26, and real wage growth to remain strong at around 2.2 per cent in 2025. However, living standards for average UK households will not return to pre-2022 levels before the end of 2025-26.
The hit to living standards is already being felt, with households in the bottom-income decile worse off by around 20 per cent this year compared with the year before the cost-of-living crisis, which amounts to approximately £2,500.
