UK set for economic recovery and stability by 2025: S&P Global

S&P Global forecasts a modest GDP expansion of 0.3 per cent in 2024, with growth rates expected to increase to 1.4 per cent in 2025 and continue at a pace of 1.7 per cent annually through 2026 and 2027. This improvement is largely attributed to the anticipated disinflation, which is expected to enhance household spending, supported by a resilient labour market.

Despite the decline in headline inflation to 3.4 per cent year-on-year in February from 10.4 per cent a year earlier, the report indicates that inflation in the services sector remains high due to robust wage increases. However, the tight labour market is expected to maintain upward pressure on wages, with annual pay rises of 4-5 per cent predicted in 2025 as workers seek compensation for increased living costs, as per S&P Global.

The UK's labour market remains solid, with job vacancies declining but not enough to increase unemployment significantly. This is partly due to the slow expansion of the labour supply and ongoing issues like long-term sickness keeping the employment rate below pre-pandemic levels.

In terms of monetary policy, S&P Global anticipates some easing in 2024 and 2025, which will likely contribute to economic growth in 2026 and 2027 by encouraging investment rebound. This scenario assumes lower interest rates from August, with the market predicting a 57 per cent probability of a rate cut in June and an 82 per cent chance in August.

The report also underscores the positive outlook for consumption and terms of trade, buoyed by a combination of a strong labour market, wage increases, and lower energy costs. This optimism is further supported by expectations of continued demand in key export markets and improvements in the Eurozone.

On the investment front, the UK is seeing signs of recovery, particularly in business investment post-Brexit, aided by government incentives like the full expensing scheme. Labor productivity, especially in key services sectors, is also on the rise, contributing significantly to the overall productivity improvements.

Additionally, the UK's working-age population is expected to grow, contrasting with demographic trends in some other European countries, providing a favourable backdrop for the labour market and economic activity.

However, the report does caution about risks to this optimistic scenario, including potential geopolitical tensions that could lead to further supply-chain disruptions or trade barriers, as well as the possibility of earlier monetary policy loosening if wage pressures decline more rapidly than anticipated.

Fibre2Fashion News Desk (DP)