UK economy to grow 1.1% in 2024, EY finds

UK GDP is predicted to grow by 1.1% this year, faster than previous expectations, after the economy welcomed a “stronger-than-expected” start to 2024, the latest EY ITEM Club Summer Forecast has found.The Big Four firm said the figure marks a “significant” upgrade from the 0.7% rise predicted in April’s Spring Forecast, and the 0.1% GDP growth seen in 2023. 

According to its latest forecast, this economic momentum is expected to accelerate even further next year, with 2% GDP growth expected in 2025 and in 2026.

Although a slowdown in wage growth is expected to continue, real household incomes are expected to rise “substantially” thanks to lower inflation. According to the EY ITEM Club, Consumer Price Index (CPI) inflation will remain around the Bank of England’s 2% target over the coming years, with an average of 2.5% in 2024, falling to 2.2% in 2025. 

Lower inflation is also expected to prompt the Monetary Policy Committee (MPC) to reduce the Bank Rate to 4.75% before the end of 2024, with the EY ITEM Club predicting that the first interest rate cut will come in September and be followed by a further cut in November. 

This is a slight downgrade on the Spring Forecast prediction that Bank Rate would fall to 4.5% by the end of the 2024, due in part to ongoing stickiness in services inflation.

Hywel Ball, EY UK chair, said: “The opening months of 2024 delivered a stronger than anticipated economic performance and, with inflation predicted to remain relatively stable and consumer spending set to climb, growth should continue. The UK’s economic recovery is underway, but it’s expected to be more steady than spectacular.

“Brighter conditions are expected to be matched by a rise in business investment in 2024, followed by an even more significant uptick next year. This would continue the UK’s strong post-pandemic performance in private sector investment and, alongside consumer spending, should be a key driver of national growth going forwards.”