The UK received another upgrade on the back of its strong performance in the first half of the year, with EY the latest firm to bump up forecasts for the economy.
The consultancy now expects gross domestic product (GDP) to grow 1.1 per cent this year, up from a previous estimate of 0.7 per cent.
EY forecast that falling inflation would help deliver a substantial boost to household incomes over the coming years even as wage growth slows.
Inflation is expected to average 2.5 per cent this year and 2.2 per cent next year, which will help consumer spending grow 0.8 per cent this year before rising 2.5 per cent in 2025.
Positive momentum from lower inflation will be partly offset by the negative drag from higher interest rates. EY expects rate cuts to commence in September, with one more cut expected in the year.
“The UK’s economic recovery is underway, but it’s expected to be more steady than spectacular,” Hywel Ball, EY UK Chair, said.
A host of firms have been rushing to upgrade their forecasts for the UK after the economy grew much faster than expected at the beginning of the year. GDP grew by 0.7 per cent in the first three months of the year and many economists expect this performance could be matched in the second quarter.
Barclays and Goldman Sachs both think the UK could grow 1.1 per cent in 2024 while Deutsche Bank forecasts growth of 1.2 per cent. At the turn of the year, the consensus was for the UK to grow just 0.5 per cent in 2024.
EY was also fairly bullish on the prospects for business investment. It forecast that business investment would grow one per cent this year and 3.2 per cent next year.
“This would continue the UK’s strong post-pandemic performance in private sector investment and, alongside consumer spending, should be a key driver of national growth going forwards,” Ball said.
Investment in the UK has picked up post-pandemic, finally surpassing its pre-referendum peak in 2022. Last year, only Italy recorded a faster rate of investment growth than the UK among G7 nations.