UK economy: A roundup for 2024
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
The state of the UK economy has key implications for individuals’ and households’ financial plans. For instance, the economic landscape informs government policy and decisions (e.g., tax rates), which can bestow costs and/or benefits on the population.
In this article, our financial advisers in Grantham explore some of the primary economic indicators for the UK in 2024. We then discuss how these might affect financial planning in the coming months and how this might bear upon an individual’s decision-making.
We hope these insights are helpful. To discuss your own family financial plan with us, please get in touch to arrange a no-obligation financial consultation at our expense:
01476 855 585
info@casfin.co.uk
Growth
In 2023, UK economic growth was estimated at 0.10%. This follows a GDP growth rate of 4.3% the previous year and compares unfavourably with the US and many EU economies, which have grown higher by 3% to 8.2%.
The UK government has a strong incentive to try to increase growth beyond 0.10%. After all, controlled growth increases the supply of public goods and jobs. It also helps governments when going to the polls when they can point to strong growth (and the UK likely faces an election later in 2024).
Yet the UK faces a counteracting economic objective: to reduce inflation (currently at 3.4%) to the 2% target. Higher growth tends to accompany higher aggregate demand (i.e., spending across the economy), which can create demand-pull inflation.
What does all of this mean for households? The UK faces conflicting objectives, which may not be adequately resolved until 2025. At this point, new manifestos will have been put to the electorate about which way to “steer” the economy. The freshly elected government can then implement its mandate.
Hopefully, by this time, inflation will also be close to the 2% target, alleviating some of the conflict in economic objectives and freeing up the government to focus on growth. In the meantime, in 2024, the prevailing narrative for growth seems to be as follows: “Hold steady, bring inflation down and avoid a recession”.
Interest rates and inflation
Recent inflation figures from the CPI (Consumer Price Index) may suggest that the UK is heading in the right direction. In the 12 months leading up to February 2024, CPI inflation stood at 3.4%. This is down from 4% in January and miles away from the peak of 11.1% in 2022.
However, core inflation (CPI excluding food and energy) remains higher at 4.2%. Services inflation remains high at 6% in March, down from 6.1% in February. The latter is noteworthy because 81% of economic output and 83% of employment in the UK consist of services. In short, we are not out of the inflation woods yet.
This partly explains why the Bank of England (BoE) has kept interest rates at 5.25% despite some encouraging inflation figures. Officials want to be sure that the trend is not merely transitory before lowering rates. Naturally, this raises some key questions for households.
In particular, should you wait until rates fall before remortgaging? Where should you invest or save your money? The answers will vary depending on your financial goals and circumstances. However, the current landscape for inflation and interest rates will be important to consider as you weigh your options with a financial adviser.
What might the future hold?
Barring any unexpected events, such as another major conflict or economic shock, what might the UK economy look like later in 2024 and beyond? How could households prepare?
Much depends on the upcoming UK general election. Whichever party wins power will inherit some difficult decisions on the economy. One issue is the UK’s national debt, which stood at 98% of GDP in March 2024 (over £2.5 trillion)—levels not seen since the 1960s.
A positive scenario is that inflation comes under control (e.g. 2%) and interest rates also fall, encouraging aggregate demand and, therefore, higher growth. This would help the government to restructure public debt at lower rates and reduce the opportunity cost of spending public money on debt servicing. This would allow more “headroom” for tax cuts and/or lifting some long-time “freezes” on income tax brackets.
A more negative scenario is that inflation remains stubbornly high for some time. Interest rates are kept high to prevent further increases, dampening consumer spending and putting downward pressure on growth. The government borrows more money at higher rates than in the first scenario, resulting in higher debt servicing costs. This puts more pressure on politicians to raise taxes and/or cut spending on public services to help plug the widening budget deficit.
Of course, nobody has a crystal ball, and another scenario might arise. Fortunately, a prudent financial plan can help carry you through different outcomes – protecting your household and moving you towards your goals. These include having a robust protection plan (e.g. relevant insurance and an emergency fund), as well as sound strategies to build wealth and provide for your retirement and estate.
Invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
