The British Chambers of Commerce (BCC) Quarterly Economic Forecast has slightly upgraded growth expectations for 2024 and 2025, following a stronger start to the year. However, the forecast for 2026 remains unchanged.
UK Economic Outlook
The UK economy is expected to continue its recovery after the short recession at the end of 2023, but long-term growth is unlikely to be strong. After a weak 2023, growth for 2024 and 2025 has been revised upwards for the second forecast running, to 0.8% and 1.0% respectively, with 2026 remaining at 1.0%.
But the overall profile remains flat, as a poor outlook for exports acts as a drag anchor and high interest rates continue to limit investment. This comes as BCC surveys continue to show most SMEs are still not increasing their investment.
While CPI inflation should dip below the Bank of England’s 2% target this year, it is expected to rise again to 2.3% across Q4 2024. It is also forecast to be slightly above target in Q4 2025 at 2.1% and 2.2% in Q4 2026.
Small upwards revision to quarterly GDP
Growth in the first half of 2024 is now expected to be comparatively strong, as the economy improves after the short recession. The ONS has estimated growth of 0.6% for Q1 and the BCC is forecasting 0.4% for Q2. However, this is not expected to last, with growth slowing to 0.3% in Q3, and 0.2% for the next five quarters after that. Overall, the expectations for 2024 and 2025 are both up by 0.3%, to 0.8% and 1.0% respectively.
But with global headwinds remaining, interest rates falling slowly and only a gradual expansion in consumer spending, the BCC expects growth to remain subdued – holding at 1.0% for 2026.
Outlook for trade remains very weak
The poor outlook for trade is also holding the economy back, with both imports and exports contracting in 2024 by -1.9% and –1.7% respectively, before a gradual bounce back in 2025 and 2026.
However, with CPI inflation set to stay low and interest rates predicted to be cut, the BCC does expect business investment to steadily increase across the three years of the forecast. There will be a rise of 0.8% in 2024, 1.3% in 2025 and 2.0% in 2026.
Average earnings will continue to perform strongly
Average earnings are expected to continue to grow more strongly than inflation across the forecast period, with annual growth of 3.0% to Q4 2024, followed by 4.0% to Q4 2025 and 4.5% at the end of 2026. This in unchanged from the BCC’s last forecast.
With core inflation proving stubborn, wages continuing to rise, and geopolitical uncertainty persisting, the Bank of England interest rate is expected to be cut more cautiously. The BCC now forecasts a base rate of 4.75% at the end of Q4 2024, then 4.35% for Q4 2025, and 3.95% by Q4 2026.
Unemployment rate expected to be slightly higher
The unemployment rate is now expected to rise more strongly to 4.5% in 2024 and then 4.6% in 2025 before falling to 4.4% in 2026. This is a slight increase from last quarter’s forecast. But the labour market is set to remain historically tight as difficulty finding skilled staff and long-term sickness impact the available workforce.
Commenting on the forecast, Vicky Pryce, Chair of the BCC Economic Advisory Council, said:
“The BCC’s latest forecast shows there is life in the UK economy but if it is to gain momentum then it must be nurtured.
“With interest rates expected to be cut at a modest pace and pay outstripping inflation, businesses will be holding onto much of their money – even as confidence rises after the mini-recession.
“As we enter the final weeks of the general election campaign, businesses will be watching for politicians to show they have sustainable long term economic plans. These must play to the UK’s strengths and give companies confidence.”
David Bharier, Head of Research at the British Chambers of Commerce, said:
“With an upgrade to GDP expectations, our forecast expects the UK economy to be edging towards slightly higher growth rates. With the recession of 2023 concluded, and interest rate cuts now expected later in 2024, the environment should become more stable for SMEs to invest. However, the margins are slim, and any further shocks could easily dent this recovery.
“Our research is clear about the issues UK SMEs are facing – skills shortages, inflation that eats at margins, high interest rates that make borrowing harder, and trade barriers with the European Union.
“The BCC’s election manifesto sets our clear policies in five areas which could reinforce business confidence and put the economy on a more secure footing.
“A green-focussed industrial strategy is urgently needed, with action on skills planning, AI, business rates reform and improved trade relations with the EU.”
Key points in the forecast:
- GDP growth in 2024 and 2025 upgraded from 0.5% and 0.7% to 0.8% and 1.0% respectively. While 2026 is expected to be on a par with 2025, at 1.0%.
- The interest rate peaked at 5.25% in 2023 and is expected to be cut to 4.75% by the end of 2024. It is expected to be cut to 4.35% by the end of 2025 and then to 3.95% at the end of 2026. This is still well above the average for the previous decade.
- The inflation rate will remain slightly above the Bank of England’s 2% target overall, hitting 2.3% in 2024, 2.1% in 2025 before ticking up to 2.2% in Q4 2026.
- Imports and exports are both expected to contract in 2024 (-1.9% and -1.7% respectively) before growing in 2025 (0.7% and 0.3%) and 2026 (1.0% and 1.1%). This is weak by historical standards.
An info sheet on the main findings of the forecast can be found here.
