Gabriella Dickens, G7 economist at Axa Investment Managers, elaborates on this.
She says: “Around 70 per cent of the growth we have seen in 2024 is government spending, and also the fact that in 2023 there were strike days, which haven’t occurred this year – that has boosted the GDP number, as it counts as an increase in the level of economic activity. But if you remove those factors, the growth rate is much more modest.
"The growth we have had has been about improvements to the supply side of the economy; household consumption and consumer services is quite weak in the data. I think if you strip out those one-off impacts, then growth in the UK is weaker and is below trend.”
While she does not expect a recession, she says “a slowdown is almost inevitable”.
Peder Beck-Friis, economist at Pimco, is another who expects the current rate of growth to slow in the UK.
He says the quarters of negative growth in 2023 were partly the consequence of the negative impact of higher interest rates being felt on the economy, but 2024 has seen the impact of that wane, as it has now been a number of months since rates rose, or since market participants began to fear that rates would rise further.
He believes that, in particular, data related to the jobs market is showing some signs of weakness, which is likely to hamper growth in the near future.
Inflation outlook
Dickens says one recent feature of the economic data has been that while people’s real incomes – that is, their spending power after inflation – have improved, “they aren’t out there spending it.
"Higher energy bills are part of the reason for that, but also mortgage refinancing; people knew they would be refinancing this year or next year, and that it would be more expensive for them, so they have tried to minimise that [expense] by paying down debt now.”
Beck-Friis says that while the level of UK inflation has fallen “impressively” this year, he expects it to “tick back up” later this year as a result of the energy price cap rising.
One economist more optimistic about the outlook for growth is Gerard Lyons, chief economic strategist at Netwealth.
He says: “The BoE in particular, and the Office of Budget Responsibility, underestimated growth coming in to this year, and I suspect they will have to revise up their forecasts. It’s quite bizarre but some policymakers were taken off guard by the level of growth; the consensus among economists was for higher growth than the BoE expected.
