United Kingdom – 2024-2025 Scenario: start of a sluggish growth cycle

The UK experienced almost zero growth in 2023, posting a slight recession in the second half as tight monetary policy weighed on demand. Inflation fell more sharply than expected, from 11.1% year-on-year in October 2022 to 4% in December 2023, pulled down by energy prices and moderating inflation in industrial goods. 

Inflation is expected to drop below target in Q2 2024 due to another decline in gas and electricity prices on April 1st, before returning slightly above target in H2 2024. This should not prevent the BoE from embarking on a very gradual monetary easing cycle in June.

Household consumption is likely to be the main driver of the expected recovery this year, driven by solid growth in real income, supportive labour market conditions and signs of improvement in the housing market. The acceleration in economic activity should boost employment, keeping the unemployment rate low. That said, the potential for economic recovery may be hampered by high rates, weak external demand and deteriorating competitiveness.