UK economy will remain ‘grey gloom’ in 2024, say experts

03/01/2024

THE UK economy will enter ‘grey gloom’ until polling day, according to the FT’s annual survey.

A majority of the 90 respondents to the FT’s annual poll of leading UK-based economists said despite falling inflation voters would feel little improvement in their living standards before the general election expected this year. With prices remaining far higher than before the inflationary surge, Andrew Oswald, a professor at Warwick University, said a partial catch-up of wages in 2024 would feel like swapping “black gloom” for “grey gloom”.

“Real wages will be rising, but so will unemployment, the tax burden, rents and the average interest rate on the stock of mortgages,” said Michael Saunders, a former Bank of England rate-setter now at the consultancy Oxford Economics. 

“I do not expect a feelgood factor in the run-up to the election,” he added. “Living standards for most will have stagnated over the lifetime of the Parliament,” said Charlie Bean, former chief economist at the BoE. 

Unemployment is low by historic standards but most respondents to the survey said it was set to rise over the year ahead from 4.2 per cent to between 4.5 per cent and 5 per cent by the end of 2024. 

Alfie Stirling, chief economist at the Joseph Rowntree Foundation, said that for many in less secure industries, “the worst may be still to come” as higher interest rates prompt companies to cut jobs. Many economists said that higher public investment would be the key to lifting the UK’s long-term economic growth rate — even if this was unlikely to happen until a new government was in place. “The issue isn’t just incomes and inflation, but that people’s experience day to day is getting worse as public services crumble,” said Diane Coyle, professor of public policy at Cambridge University.

She added: “The bill for sustained under-investment in everything from infrastructure, health and education to private business is coming due.” Many respondents were sceptical there would be any fresh impetus to boost the UK’s woeful growth prospects — at least until the election delivers greater political certainty to underpin investment. Their forecast of at best 0.5 per cent growth would be no worse in the short term than the growth rates expected in battered EU economies, but it would leave the UK trailing the US. 

Jack Meaning, UK chief economist at Barclays, said the UK economy would remain “stuck on pause”. More worrying is that the UK’s growth has been anaemic for years. Economists see little prospect of it reviving without a big policy reset. “Productivity growth is close to zero. New thinking is needed on how to put that right,” said Erik Britton, managing director at Fathom Consulting. Lydia Prieg, head of economics at the New Economics Foundation, said the UK economy was “in an economic rut” and that “we are all poorer because of it”.

Khalid Talukder, co-founder, DKK Partners said: “Sluggish growth and a grey economic outlook will leave many organisations entering 2024 cautiously. However, with forecasts suggesting that a technical recession is far from certain, the time has come for ambitious businesses to step up their expansion plans and enter the new year ready for growth.

He continued, “Britain has many fantastic business success stories, yet far too many companies struggle to expand internationally into new markets because they lack the necessary payments infrastructure. As the UK gears up for growth, it’s vital that fast-growing companies are equipped with the tools they need to compete internationally in the global marketplace.”

Jason Kurtz, CEO, Basware, commented: “With early economic forecasts suggesting sluggish growth this year, pressure will be mounting on business leaders to do more with less. Against the backdrop of higher interest rates despite falling inflation, driving cost savings without compromising productivity will be top of the boardroom agenda. With this in mind, forward-thinking businesses should look closely at how they can overhaul and optimise key functions such as finance, to embrace AI and automation, which will improve accuracy whilst reducing overheads. Far too many organisations are still being hampered by late payments, invoice errors and outdated manual processes, which cannot be allowed to continue when the economic outlook remains challenging and uncertain.”

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