The UK’s economic prospects have improved with revised growth forecasts for 2023 and 2024.
- The Bank of England’s interest rate adjustments are projected to impact future growth.
- Public investment is a key factor for sustained economic growth, according to experts.
- Consumer spending remains muted due to economic uncertainties.
- Chancellor Rachel Reeves faces challenges with the upcoming budget.
The UK’s economic forecast for 2023 has been revised upward, with GDP expected to grow by 1%, a significant improvement from the previously anticipated 0.5%. The growth forecast for 2024 also sees an increase from 0.9% to 1.2%, reflecting a more optimistic economic outlook. This adjustment comes after a period of economic stagnation, with 0.2% growth reported in August, driven by the manufacturing and construction sectors.
The Bank of England is gradually reducing interest rates, with the base rate expected to decline to 3.5% by 2025 from the current 5%. This strategic monetary policy is designed to spur economic activity by making borrowing cheaper, potentially encouraging consumer spending and business investments.
KPMG highlights the critical role of public investment in sustaining economic growth. Yael Selfin, KPMG UK’s chief economist, emphasises the opportunity for Chancellor Rachel Reeves to use the autumn budget to implement policies that will drive growth. Reeves has indicated a commitment to increasing capital and real public spending, distancing from policies of austerity.
Despite positive growth forecasts, consumer spending remains conservative, with an expected growth of just 0.4% this year and 1.4% next year. This caution among consumers is attributed to recent economic challenges, including the Covid-19 pandemic and energy crisis, leading many households to prioritise saving over spending.
Chancellor Rachel Reeves is confronted with the task of addressing a £22 billion deficit, necessitating ‘difficult decisions’ in the upcoming budget on October 30. There is widespread concern about potential tax hikes and their impact on business confidence, with stakeholders urging a balanced approach to fiscal policy.
The UK economy shows signs of recovery, but strategic fiscal and monetary policies are essential to maintain growth and address fiscal challenges.
