Investec raises growth forecast and backs November interest rate cut
Global banking firm Investec has lifted its growth projections for the UK economy with another interest rate cut pencilled in for 2025.
The financial services company expects the UK economy to grow 1.5 per cent this year and 1.6 per cent in 2026. This trumps the Office for Budget Responsibility (OBR) forecast, which expects the economy to grow one per cent this year.
It comes after “slightly firmer” GDP data, which has provided the government a modest boost.
Data from the Office for National Statistics (ONS) showed the UK economy grew 0.4 per cent in June – an unexpected turnaround after tariff and tax uncertainty clouded the period.
A Bloomberg poll of economists had predicted a 0.1 per cent rise prior to the release.
As a result, Investec economists said they “just about stick to [their] call” of an interest rate cut in November.
Markets had priced a 50 per cent chance of an interest rate cut being made at the Bank of England’s next meeting but fresh inflation data earlier this month slashed expectations.
The Bank of England’s early August forecast correctly predicted inflation in July would be 3.8 per cent leading to economists expecting a hawkish vote in November.
Investec: Better growth eases tax fears
If growth meets these forecasts, Investec economists said “the OBR may yet hold off cutting its own forecasts too, meaning fewer tax rises may be needed than feared.”
Some economists have suggested Chancellor Rachel Reeves will be staring down a £50bn black hole come the 2025 Autumn Budget.
This comes after U-turns from the Labour government derailed savings opportunities that the Chancellor had relied on. Reeves had hoped to shed £5bn in welfare spending through reforms but a rebellion from back benchers led to a policy row back.
Following the government’s Spending Review, where Reeves splurged £190bn across public services, economists warned of future tax hikes of over £20bn.
KPMG’s chief UK economist, Yael Selfin, said a growth forecast of just 1.2 per cent would lead to public sector revenues falling below Reeves’ expectations given an increase in the cost of borrowing due to high gilt yields and a stalling in interest rate cuts.