The Bank of England won’t reduce the base rate in 2024 and inflation will remain above the bank’s 2% target, according to the Confederation of British Industry (CBI).
The business group’s latest economic forecast suggested the UK is set for another year of “weak growth” in 2024 as “significant headwinds continue to impact the UK economy”.
Following GDP growth of 0.6% in 2023, the CBI expects 0.8% growth in 2024, picking up to 1.6% in 2025.
The CBI said growth in consumer spending will remain weak next year (0.4%, unchanged from 2023), as higher interest rates bite harder on household incomes.
The forecast statement read: “While we expect the Bank of England to have reached the end of its rate-hiking cycle, the delay in the feed-through to the economy means that households have yet to feel the full impact of higher borrowing costs. The bank rate is expected to stay at its current level of 5.25% throughout our forecast.”
The CBI also warned that unemployment could rise from its current level of 4.2% next year. However, unemployment is set to peak at a still-historically low 5% in mid-2025, which means that the labour market will remain relatively tight.
But set against this, the CBI said CPI inflation is expected to fall back further, giving a further boost to real earnings. However, inflation is set to stay above the Bank of England’s 2% target over the coming year, ending 2024 at 2.5%, before returning to target in mid-2025.
‘The 2020s have yet to roar’
Louise Hellem, CBI chief economist, said: “Amid the sheer degree of headwinds that the economy has faced over the last couple of years, businesses and households have shown remarkable resilience. Let’s not forget that even the weak growth we’ve seen is better than expectations of a recession this time last year.
“But that is by no means job done. Businesses are gearing up for another tough year ahead, with our forecast expecting weak growth to persist over 2024. Given that this is coming after an already challenging few years, it’s clear that the 2020s have yet to roar.”
The CBI’s interest rate predictions come in contrast to hints from the Bank of England and other expert predictions which suggest we could see a rate cut in Q2 2024.
