Foreward: A Tale of Two Halves

Our outlook for the state of the UK economy in 2025 is a tale of two halves. Whereas in the first two quarters economic growth remains subdued and inflation above the two per cent target, in the second semester output growth will pick up and inflation will come back down. This pattern confirms something well-known and reveals something new. It confirms that the slow recovery from the 2022 spike in inflation and the ensuing cost-of-living crisis have put the spotlight squarely on policymaking as successive governments have produced various "plans for growth" to no effect. The weak pace of growth reveals a new pattern – a markedly slower bounce-back compared with downturns in the early 1990s or after the 2008-09 financial crash. Anaemic growth and persistent inflationary pressures look set to be among the defining features of the UK economy in the 2020s, though this is not a return to the stagflation of the 1970s. Once more this puts the onus on policymakers who, it is true, have to contend with systemic challenges such as an ageing population, climate change, technological disruption and geopolitical turmoil. Higher economic growth is an even greater imperative than in the more benign context of the 1990s and the early 2000s when the average rate of economic growth was in excess of two per cent per year.