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Kirkstone Pass | AccountingWEB | UK economy starting to turn a corner
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UK economy is starting to turn a corner

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After a turbulent period, the UK economy may well be on the road to righting itself with consumer confidence recovering and inflation falling.

3rd Jul 2024
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The UK economy is turning a corner, according to KPMG, with a combination of tailwinds to consumption and falling inflation set to support modest positive growth over the remainder of 2024 and into 2025.

The Big Four firm has released its latest global economic outlook, which suggests there’s some “tentative signs of renewed momentum” ahead of an expected 0.5% growth this year.

Reasons for optimism

Several reasons for optimism have been highlighted, including consumption being backed by cuts to national insurance contributions, which are expected to boost real household disposable income by 1%.

Consumer confidence is gradually recovering, alongside tightness in the labour market and further falls in inflation.

Meanwhile, improvements in underlying inflationary pressures are expected to “favour a gradual withdrawal of monetary policy restrictiveness in the coming months”, with KPMG noting that the Bank Rate is forecast to fall towards 3% by the second half of 2025.

The general election is naturally on the radar too, but while the outcome will be a welcome conclusion to the political uncertainty being felt in the UK, the report states that the fiscal reality is “similar for whichever party wins”.

Evolving landscape

“Interest rates are set to remain higher, debt more difficult to bring down, and spending pressures on health and defence continue to mount,” it added.

“With relatively subtle differences in the stated plans for fiscal rules and taxation so far, borrowing will likely follow a similar path under either government.”

Elsewhere, business investment could very well “return as an engine of growth”, with corporate insolvencies down from a year ago and some tentative signs of a pickup in mergers and acquisitions (M&A) activity.

Yael Selfin, chief economist at KPMG UK, noted that households have “benefited from a pickup in real earnings and a relatively stable labour market”.

“Political uncertainty will now resolve sooner with a summer election and a potential fiscal event in the autumn setting out the new government’s economic agenda. This could be aided by gradual cuts in interest rates, which look likely despite a small rise in inflation above its target expected later this year.

“To stay ahead, successful businesses will have to aptly navigate this evolving economic landscape.”

Global growth set to slow

The UK outlook has been drawn up against a backdrop of global growth being forecast to slow from the 2.7% in 2023 to 2.5% in 2024 before rebounding to 2.7% next year.

Inflation is expected to continue to cool, although in several countries the price pressure “will take longer to unwind than it took to emerge”, while geopolitical uncertainty is elevating as almost half of the world’s population has either voted or is voting at the polls this year.

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By FactChecker
03rd Jul 2024 19:51

"Inflation is expected to continue to cool, although in several countries the price pressure “will take longer to unwind than it took to emerge”, while geopolitical uncertainty is elevating as almost half of the world’s population has either voted or is voting at the polls this year."

... says it all really - although a number of other paras serve up an equally uninformative conclusion.

Econometric modelling vs casting the runes? The jury's out but both appear no better than praying!

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By johnjenkins
04th Jul 2024 10:46

As I have said many times, we are in a period of stagnation or wobbling about on the bottom of the sea. Unless something drastic occurs from the new Government then I see no improvement. France will block Marine Le Pen, which the people will not like one bit. So be prepared for ports to be blocked and prices to go up, but probably not enough to fuel inflation. This next couple of years will see the EU collapse in its present form with Tony Blair and David Cameron spear heading a new European agreement. Only then will we start getting that "feel good factor" back.

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