Navigating the Crossroads: UK Economy Outlook 2024 and Beyond

In a new video, Geoff discusses some of the key data on the UK economy in the aftermath of the October 2024 Budget and the election of Trump as US President. Can the UK economy break out of a slow-growth pathway as we head into a New Year? Several factors are dragging back expansion - not least a 77-year high for the tax burden, slower than expected interest rate cuts, allied to fragile confidence among businesses and consumers. Businesses are warning that rising costs - from higher minimum wages to increased national insurance and persistently high energy bills will likely hurt recruitment intentions in 2025. You can download the presentation using the link below.

Here is a summary of the key points from the commentary in the document:

Economic and Fiscal Updates

• Budget and Spending Plans:
  • The UK government plans an additional £70 billion in current and capital spending by 2029.
  • This increase will be partially funded by £40 billion in tax hikes, the largest since 1993.
  • Taxes include higher employer national insurance, VAT on private school fees, and increased capital gains tax.
• Borrowing Trends:
  • Government borrowing is set to peak at £128 billion this year and decline to £71 billion by 2029-30.
  • Aiming for a current budget surplus by 2029.
• Economic Outlook:
  • UK's potential growth rate is estimated at 1.7% annually by the Office for Budget Responsibility (OBR), with the government targeting growth above 2%.
  • Inflationary pressures are easing but have significantly eroded real wages, amplifying public dissatisfaction despite nominal wage gains.

Taxation and Government Debt

• Tax Burden:
  • The UK tax burden has reached its highest in 77 years as a strategy to reduce borrowing and manage debt.
• National Debt:
  • Government debt as a share of GDP remains a concern, with long-term borrowing costs influenced by global and domestic economic conditions.

Labor Market and Cost Pressures

• Wages and Business Costs:
  • Businesses face rising costs from higher employer national insurance and an increased national minimum wage.
  • Persistent high energy costs and a weaker pound exacerbate challenges.
• Impact on Households:
  • Borrowing costs for households remain elevated, though a drop in mortgage rates in 2025 may offer some relief.

Monetary Policy

• Bank of England:
  • Interest rates currently at 4.75%; analysts question the feasibility of significant cuts in the near term.
  • Prolonged high borrowing costs may deter investment and economic growth.

Political and Global Risks

• Post-Brexit Stance:
  • Britain will not rejoin the EU, single market, or customs union, maintaining its post-Brexit direction.
• Global Risks:
  • A potential second Trump administration could introduce significant trade tariffs, disrupting global trade and slowing UK growth further.

Summary Themes

• The UK faces a challenging economic environment characterized by high inflation, slow growth, and mounting fiscal pressures.
• Tax and spending policies are aimed at stabilizing debt while attempting to balance growth.
• Political decisions and global economic shifts pose risks to the UK's economic trajectory.