National Institute UK Economic Outlook Summer 2024

Despite a strong start in the first half of the year we expect GDP growth to remain around its trend rate of 1 per cent over 2024 as a whole. Looking ahead, we anticipate growth of 1.2 per cent in 2025. Real wage growth is expected to remain strong into next year. We forecast real wage growth of 0.7 per cent in 2024 and 2.2 per cent in 2025. This means workers will see a continued recovery in their standard of living. Rate cuts have begun but we expect a slow unwinding of monetary policy given that inflation will likely exceed 2.5 per cent in January 2025. Following the notable drop in the headline rate of inflation to 1.7 per cent in September, we expect the Bank of England to continue cutting rates gradually to ensure inflation remains at its 2 per cent target. The chancellor has changed the measure of debt used in the fiscal rules from public sector net debt to public sector net financial liabilities. This is a welcome move that has increased fiscal space against the debt target by £49.3 billion but still restricts public investment by not leveraging the value of fixed assets on the government's balance sheet. The chancellor has opted for a 1.2 percentage point rise in the rate of employer National Insurance Contributions. This is expected to raise up to £25 billion in revenue annually over the next five years. As a tax on jobs, we expect this to lead to a fall in job creation and a gradual rise in the unemployment rate over the forecast horizon.