Bank of England: UK growth forecasts get upgraded – but momentum still weak
The Bank of England has bumped up its growth forecasts for the UK economy this year but warned that underlying momentum still remains weak.
Gross domestic product (GDP) is expected to grow by around 1.25 per cent in 2024, according to the Bank’s August Monetary Policy Report (MPR), a big upgrade on its previous estimate of 0.5 per cent.
Looking to the immediate future, GDP growth in the second quarter is expected to match the 0.7 per cent recorded in the first three months of 2024.
However, this will then slow fairly sharply in the remainder of the year with the Bank suggesting that “underlying momentum appears weaker” than the headline figures imply.
Business surveys point to a quarterly growth rate closer to 0.25 per cent, the Bank said.
Looking into next year, therefore, growth will slow to 0.9 per cent in 2025 and 1.5 per cent in 2026, compared to a previous estimate of 1.0 per cent and 1.3 per cent.
“Notwithstanding the higher starting point, the pace of GDP growth in the August projkection is broadly similar to the May Report over much of the forecast period,” the MPR noted.
Having said that, the MPC said it would monitor closely whether continued strength in GDP growth could represent “the re-emergence of a small margin of excess demand”.
If there were further positive surprises on activity, this would suggest greater domestic inflationary pressures than previously anticipated.
Over the course of the year consensus for annual GDP growth has slowly edged up reflecting the UK’s surprisingly strong economic performance.
At the turn of the year, economists expected the UK to grow around 0.4 per cent, but consensus now stands around one per cent.
As in the May forecast, the August projection shows inflation picking up to around 2.7 per cent by the end of the year.
The increase in inflation will come about as last year’s steep drop in energy prices falls out of the annual comparison. This will reveal the “prevailing persistence of domestic inflationary pressures”.
Inflation will then return to the two per cent by the start of 2026 and will remain below target for the remainder of the forecast period.
Although the Bank of England cut interest rates today, the Bank Rate remains in restrictive territory which means monetary policy will continue to weigh on economic activity.
On the back of this, unemployment will continue to rise slightly over the years ahead, climbing to a peak of 4.8 per cent in mid-2026.
The forecasts were released alongside the Bank’s latest rate decision, in which policymakers voted to cut rates for the first time since March 2020.