UK economy growth forecasts cut drastically for the next two years

November 27, 2023

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UK economy growth forecasts cut drastically for the next two years

The UK economy will grow much more slowly than expected in the next two years as inflation takes longer to fall, with the latest government forecast.

Living standards are also not expected to return to pre-pandemic levels until 2027-28, the Office for Budget Responsibility (OBR) said. With this announcement coming as the chancellor announced tax cuts and a rise in benefits in his latest Autumn Statement.

The OBR, which is independent from the government, publishes two sets of economic forecasts a year, which are then used to predict what will happen to government finances in the upcoming period.

These are based on an educated prediction on what will happen, and therefore are subject to change. According to the watchdog, the UK will grow by 0.6% this year - a value considerably better than what it expected last autumn, when it predicted the economy would fall into recession and shrink.

However, it slashed its growth outlook to 0.7% in 2024 and 1.4% in 2025 - down from a previous forecast of 1.8% and 2.5%.

The OBR has warned that inflation - currently 4.6% - will only fall to 2.8% by the end of 2024, before eventually reaching the Bank of England's 2% target in 2025.

Previously it forecast inflation would easily beat the target next year. The economy has been struggling with a combination of high inflation, rising interest rates and flagging consumer demand, which is weighing on growth.

The Bank has put up interest rates a staggering 14 times since December 2021 to tackle soaring price rises, leaving them at 5.25% - a 15-year high - at its last two meetings.

And while rates for savers have risen, so have mortgage rates, putting pressure on households.

This has hit property prices, which the OBR said would fall by around 4.7% in 2024.

Turkey's central bank raises interest rates to 40%

Turkey's central bank has raised its main interest rate to 40% as part of a new campaign to tackle soaring inflation in the country.

The rise, from the previous rate of 35%, was much greater than expected. But Turkey's central bank suggested rates were approaching the level required to start lowering inflation.

Inflation hit 61.36% in October and is forecast to rise further and peak in May next year at around 70 to 75%.

While central banks globally have raised interest rates in an attempt to slow rising prices, President Recep Tayyip Erdogan had gone for an opposite approach, arguing that higher rates would cause prices to rise as a result.

However, since his re-election in May, his stance has now changed. The central bank, under its new chief Hafize Gaye Erkan, has been allowed to ramp up interest rates - in an attempt to increase the cost of borrowing and slow down price rises - from 8.5% to 40%.

The central bank's previous policy of cutting interest rates despite high inflation triggered a currency crisis in 2021. It led to the government to introduce a scheme to protect lira deposits from currency depreciation.

Global economic growth will slow in 2024, state banks worldwide

Global economic growth will slow even more in 2024 due to high interest rates, increased energy prices and a slowdown in the world's top two economies, a series of leading banks say.

Geopolitical risk and the wars in Ukraine and the Middle East could also contribute to a worsening global financial outlook, they warn.

Global growth could slow to 2.6% next year from 2.9% this year, according to a Reuters poll forecast. While economists generally agree the world will avoid falling into recession, they highlight the possibility of "mild recessions" in Europe and the UK.

Six out of ten respondents surveyed in the World Economic Forum’s latest Chief Economics Outlook stated that the global economy looked ‘sluggish’ and expect overall conditions in the economy worldwide to decline over the coming years.

Despite chances of a softer landing for the US economy, uncertainty over the Federal Reserve's moves on interest rates makes the future hard to predict.

This has recently been coupled with China's growth being expected to weaken as companies seek more cost-efficient locations for manufacturing globally.

However, some economists have painted a more optimistic picture, pointing to the better-than-expected performance of the global economy in 2023.

With this prediction based around the fact that GDP growth and employment have held relatively steady in major economies facing extreme inflationary pressures worldwide.

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