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UK gets another upgrade but Labour’s growth target looks ‘unlikely’, PwC says

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Mel Stride has criticised Rachel Reeves for her absence in Parliament as UK government borrowing costs soar, demanding: “Where is the Chancellor?”
Mel Stride has criticised Rachel Reeves for her absence in Parliament as UK government borrowing costs soar, demanding: “Where is the Chancellor?”

Yet another forecaster has raised their growth projections for the UK this year as the economy continues to comfortably surpass expectations.

New forecasts from PwC suggest the UK will grow around one per cent this year, up from the 0.5 per cent projected by the firm at the end of last year.

Looking further ahead, PwC expects growth to pick up to 1.7 per cent in 2025 and 1.8 per cent in 2026.

Barret Kupelian, chief economist at PwC UK, said the UK has benefited from lower inflation, more stable energy prices and the diminishing effects of tight monetary policy.

“We expect some of this momentum will continue in the short term as the policymaking environment becomes more certain and duller, especially when compared to other peer economies,” Kupelian said.

A host of firms have been rushing to upgrade their forecasts for the UK after the economy grew much faster than expected at the beginning of the year. GDP grew by 0.7 per cent in the first three months of the year and many economists expect this performance could be matched in the second quarter.

Barclays and Goldman Sachs both think the UK could grow 1.1 per cent in 2024 while Deutsche Bank forecasts growth of 1.2 per cent.

However, PwC warned that Labour’s ambitious growth target – securing the highest sustained growth in the G7 – might prove a step too far, with Canada and the US both likely to outperform the UK in the medium term.

PwC highlighted a range of issues holding back the UK, including the rise in inactivity, heightened trade barriers with the EU and poor productivity growth.

To catch up with North American rivals, PwC urged the government to take action on economic inactivity, industrial policy and artificial intelligence.

“We find that focus on these three areas can go a very long way to bridge the current estimated growth gap between the UK and the rest of the G7 and help the Government meet its ambition to secure the highest sustained growth in the G7 across all of the regions of the UK,” Kupelian said