UK Economic Outlook - July 2024

The new Labour Government is taking over the economy at a turning point, benefiting from the natural swings of the economic cycle as the worst of the current crisis is behind us. We project that headline inflation will hover around the 2% target throughout this year as services inflation normalises. The Bank of England is likely to start cutting rates in the summer. As monetary policy loosens, the economic outlook should improve further. 

In our main scenario, we expect national output to grow by around 1% this year, 1.7% next year and even faster in 2026. One of the new government’s top priorities is to kickstart economic growth with an aspirational goal of achieving the ‘highest sustained growth in the G7’. Assuming this strictly translates to economic growth, rather than a more holistic measure of prosperity, our analysis shows that this has not been achieved in decades. In fact, based on current medium-term projections of economic activity across the G7, the UK is more likely to come in third place, behind the US and Canada. A significant factor driving this result is demographics; the UK is expected to see very limited growth in its working-age population over the next decade. Therefore, future growth must rely on increasing the capital stock of the UK economy and using existing resources more productively. Both of these are areas where the UK has struggled in its recent history. 

However, there is an opportunity to establish a new model of inclusive growth. The rise of GenAI, and the opportunities it presents to apply it in our day-to-day working lives, and the urgent need to transition to net zero present a unique chance to drive this change. One key lever to get the ball rolling is to commit to an industrial strategy. Our Framework for Growth report outlines the foundations for a successful industrial strategy, identifying the components business leaders believe are most effective in unlocking productivity gains and growth.