PwC predicts UK inflation to near 2% in 2024

PwC has predicted that headline inflation will come close to hitting the Bank of England’s 2% inflation target, according to its newly released economic outlook for 2024.

The report stated that despite a potential uptick in inflationary pressure in the first quarter of 2024, headline inflation will fall much faster in 2024 than the Bank anticipated, getting close to the 2% target.

This is largely owing to falls in global energy prices, though there remains considerable volatility.

However, despite falls to headline inflation, consumer prices will still be around a quarter higher than in early 2021. So consumers will continue to readjust their spending based on their priorities and preferences.

The group also stated that despite weak projected growth in 2024, the UK will still outperform France, Japan and Germany with real GDP around 2.7% higher in 2024 on average relative to 2019 levels.

Northern Ireland and Wales will grow by 0.8% and Scotland by 0.6% in 2024, putting them in the top five fastest growing regions in the UK, alongside Greater London (0.7%) and the North West (0.7%), providing a boost to the levelling up agenda.

Additionally, PwC predicted that low income households will see an improvement to their living standards.

Improving economic conditions, including the National Living Wage (NLW) increase to £11.44 from April, easing energy and food inflation throughout 2024, and increased government support via a housing benefit increase and a third cost of living payment will boost the real incomes of lower income families.

Meanwhile, for the first time since 2021, more households will expect to be better off in twelve months time than worse off, as inflation falls back materially.

London rents will average more than £2,000 per month by the end of the year for the first time, a 20% rise compared to March 2020.

As a result, rents in London will be around three times higher than in the North East on average. The rest of the UK will also see a continued rise in rents with an average increase of over 5% in 2024.

The group also predicted that there will be a significant rise in corporate insolvencies in 2024, just shy of 30,000 with smaller businesses accounting for the lion’s share.

The industries most impacted are likely to be hotels and catering, manufacturing, and transport and storage. While the IT and real estate sectors could be impacted to a lesser extent.

Lastly, the group predicted that house prices will only decline by 2% in 2024, less than expected, remaining one-fifth above pre-pandemic levels.

Barret Kupelian, chief economist at PwC, said: “Following the post-pandemic challenges, 2024 will be the year the UK turns a page. Inflation returning closer to normal levels, progress on regional growth and real incomes improving provides optimism for the year ahead, despite the legacy of higher consumer prices and rising housing costs.

“There remain many ‘known unknowns’ in 2024 that can change the trajectory of the UK, such as volatility in global energy prices due to the continued middle eastern conflict and the forthcoming General Election, however, overall the outlook is far rosier for 2024 than expected twelve months ago.”