The UK economy could soon eclipse that of Germany, experts have predicted, while the EU could hit a recession.
According to a report from the CEBR, the UK economy is set to retain its sixth-placed global ranking this year, closing in on Germany and leaving France behind. However, it is far from out of the woods, with many economic indicators showing that a lack of growth could still lead to recession.
Analysing the data, economist Shanker Singham wrote for the Telegraph that the EU “could soon self-destruct”. He added: “Comparing the UK with the sluggish economies of Western Europe may help disguise the overall stagnant condition of the British economy.
“But we should not forget that GDP per capita figures show the UK – which is trapped in a doom-loop of high taxes and low growth – is trending in the wrong direction.”
He suggested that to avoid the same fate, the UK must “leave behind the stagnancy-inducing, anti-competitive regulation that Western Europe appears so fond of.”
Advisory firm PwC’s chief economist Barret Kupelian has similarly estimated the UK will be the fourth-best performing economy in the G7 this year ahead of France, Germany and Japan, with real GDP (gross domestic product) around 2.7 percent higher than 2019.
Other experts similarly warn that the economy remains on a knife edge as we head into 2024.
The Bank of England’s efforts to bring inflation down to its 2 percent target has resulted in borrowing costs reaching the highest in 15 years. Interest rates reached 5.35 percent in August before the Bank hit pause on the successive increases.
About half of mortgage holders have already moved to new fixed-rate deals since interest rates started rising in late 2021, amounting to more than five million households. But a further five million homeowners are still due to face higher borrowing costs by the end of 2026, according to the Bank.
Laith Khalaf, head of investment analysis at AJ Bell, told the Evening Standard: “We might have reached the peak of the interest rate cycle, but we’re not out of the woods by a long shot.”
According to the Bank of England, the UK will dodge a recession in 2024 although will not achieve much growth. It added it does not see Consumer Prices Index (CPI) inflation returning to target until the end of 2025.
Revised data from the Office for National Statistics found that the UK economy declined between July and September, with a 0.1 percent drop in gross domestic product (GDP), the first hint of a recession.
The rate of unemployment, meanwhile, is expected to increase to 4.8 percent from 4.2 percent in the three months to October 2023, according to some economists, as the job market is impacted by economic uncertainty. For the first time since 2021 consumer sentiment is seen rising to the point where more households expect to be better off in 12 months than worse off.
Northern Ireland, Wales and Scotland are growing faster than the UK average, according to the report by PwC. The increase in the national living wage from April and easing food and energy inflation should mean low-income households see an improvement to their living standards.
As a result, for the first time since 2021 consumer sentiment is seen rising to the point where more households expect to be better off in 12 months than worse off.
