The British Chambers of Commerce Quarterly Economic Forecast has upgraded growth expectations for 2024 following an improved picture so far this year.
The forecast for 2025 remains unchanged, with a minor upward revision for 2026.
Cumbria Chamber of Commerce managing director Suzanne Caldwell said: “The Economic Forecast shows that economic growth has been higher than expected in the first half of 2024, following a short technical recession in 2023.
“Growth expectations for 2025 and 2026 however, could be impacted by uncertainty, with global conflicts, the upcoming US election, and trade tensions posing challenges to businesses trading internationally.
“Chambers’ recent business surveys show increasing confidence among SMEs however investment remains stagnant.
“This can be eased by further interest rate cuts. With the Autumn Budget just around the corner, the Government has the opportunity to set out measures which will boost investment, support growth and maintain competitiveness.”
UK economic outlook
The Quarterly Economic Forecast, winner of the 2024 FocusEconomics award for best GDP forecast, expects the UK economy to grow by 1.1% for 2024, with the projection for 2025 remaining at 1.0%. The economy is expected to grow by 1.1% in 2026, a minor upward revision.
The overall growth landscape remains relatively weak, with government spending the main driver of GDP this year. Household consumption is expected to increase significantly in 2025 as the impact of lower inflation and interest rate cuts kick in.
CPI is expected to be slightly higher than previously forecast by the end of 2024, at 2.6% due to global trade uncertainties, pay growth, and rising energy costs. It is then expected to slow, closer to the Bank of England 2% target, reaching 2.2% in Q4 2025 and 2.1% in Q4 2026.
Quarterly growth to remain subdued
After a welcome recovery from last year’s short recession, the UK economy has performed better than expected in 2024. The ONS has estimated growth of 0.6% in Q2, and the BCC is now forecasting 0.4% for Q3. But this momentum is expected to tail off, with 0.2% in Q4, and for every quarter in 2025.
Business investment is expected to increase by 0.3% in 2024, a revision down from the previous forecast. Business investment is then expected to grow by 1.4% in 2025 and 2.0% in 2026.
The services sector is projected to be the highest growth sector in the economy, with yearly growth above 1% across the forecasting period.
Trade outlook remains weak
The outlook for overseas trade is expected to remain weak due to ongoing trade barriers with the EU and wider trade tensions, with both imports and exports contracting in 2024 by -0.6% and -1.1%, respectively, before a gradual bounce back in 2025 and 2026. This is a slight upward revision on our last forecast.
Average earnings will continue to cool
Average earnings are expected to grow more slowly over the forecast period but continue to remain above inflation. Annual wage growth is expected to be 4.0% in Q4 2024, remaining at the same level in Q4 2025, before falling to 3.5% in Q4 2026.
Unemployment steady but concerns about youth unemployment
The average unemployment rate is expected to be 4.3% in 2024, rising slightly next year to 4.4%, before easing to 4.1% in 2025. That is a slight decrease from last quarter’s forecast. However, youth unemployment will remain high, with the percentage out of work forecast to be 13.3% this year, 13.4% in 2025 and 13.1% in 2026.
Further interest rate cuts expected
Following the first interest rate cut for over four years in August, the BCC is now forecasting another cut during Q4, with the Bank of England base rate expected to be 4.9% by the end of 2024.
The Bank is expected adopt a more cautious approach and make a series of 0.1pp cuts, bringing the interest rate to 4.3% by the end of 2025, and falling to 3.8% by the end of 2026.
