UK economic growth is likely to remain tepid next year, the Confederation of British Industry warned on Monday, as higher interest rates continue to hit home.
Publishing its latest economic forecast, the CBI said GDP was likely to grow by 0.8% next year, only a marginal improvement on this year’s 0.6% uptick. Growth is then forecast to pick up to 1.6% in 2025.
In June, the CBI forecast the UK economy would grow by 0.4% this year but by 1.8% in 2024.
The CBI said consumer spending would remain weak well into 2024 – growing by just 0.4%, unchanged on 2023 – as higher interest rates curtail spending.
The Bank of England has now raised rates 14 times since December 2021, to 5.25%, as it looks to tackle surging inflation.
The CBI said that while it believed the current rate hiking cycle was over, it did not expect the BoE to start reducing the cost of borrowing until after 2025.
Inflation, currently at 4.6% – having peaked last year at 11.1% – was forecast to end 2024 at 2.5%, above the central bank’s 2% goal. The CBI expects inflation to reach target midway through 2025.
Louise Hellem, chief economist, said: “Amid the sheer degree of headwinds that the economy has faced over the last couple if year, businesses and households have shown remarkable resilience.
“But that is by no means job done. Businesses are gearing up for another tough year ahead.”
Alpesh Paleja, the organisation’s lead economist, added: “Stagnation is nothing to write home about. While we expect growth to pick up eventually, it remains below the norm seen in the years prior to the pandemic.
“Risks to the outlook are also numerous. At home, the spectre of high inflation could linger for longer, and sluggish demand could mean that investment plans remain on hold.
“While we expect global growth to hold up, prospects in the Eurozone – our biggest trading partner – are notably weak.”
The CBI is expecting global economic growth to stay broadly constant at around 3% per year over the length of the forecast. Growth in the US next year will outstrip that of the eurozone, however, at 1.4% and 0.7% respectively.
