Euro area, United Kingdom

Our economic and market outlook for 2024

December 12, 2023

(Year-end 2024 economic forecasts are as of February 14, 2024.)

Slowing economic activity at the end of 2023 suggests that the rate-hiking cycles of the European Central Bank and the Bank of England are taking hold. We expect both central banks to keep policy restrictive until they’re confident the fight against inflation has been won. 

Jumana Saleheen, Vanguard European Chief Economist

“We expect the intended effects of monetary policy to play out in 2024. The European Central Bank and Bank of England should be able to start cutting rates later in the year as inflationary pressures ease, but rates will settle at a higher level than we’ve grown used to.”

Jumana Saleheen, Vanguard European Chief Economist

Euro area

Our outlook for year-end 2024

0.5%–1%

Economic growth,
year-over-year

The euro area’s economy has flirted with recession in the second half of 2023. We continue to expect subdued, below-trend growth as the bite from contractionary monetary and fiscal policy intensifies. As inflation falls, however, we expect economic activity eventually to receive a modest boost from gains in real wage growth. 

2.1%

Core inflation, year-over-year

The surge in commodities prices driven by the war in Ukraine and sharp rises in goods prices driven by supply-chain disruptions during the pandemic are largely in the past. In 2024, the focus will shift to services inflation, which is closely tied to the labor market. We expect a gradual labor-market softening to drive core inflation close to the 2% target set by the European Central Bank (ECB) by year-end.

2.5%–3%

Monetary policy rate

We believe that the ECB’s deposit facility rate has reached its peak for the rate-hiking cycle at 4%. With the bank determined to avoid any flare-up in core inflation, we don’t expect rate cuts at least until the middle of 2024. We expect gradual cuts to begin as the output gap—actual economic activity compared with potential economic activity—begins to widen and the labor market softens.

7%7.5%

Unemployment rate

We anticipate a softening in the labor market as economic activity falls below its potential amid restrictive monetary and fiscal policy. Our above-consensus forecast for the unemployment rate underscores our view that a “painless disinflation”—inflation falling toward the central bank’s target without associated job losses—is unlikely. 

What Im watching


The potency of monetary policy

“Nearly three-quarters of the euro area’s corporate debt is financed through banks—nearly triple the amount in the United States, where companies are far more likely to turn to the capital markets for financing. Much of euro area companies’ debt is therefore fixed for only a short duration, so changes in interest rates—up or down—are felt relatively quickly.” 


Shaan Raithatha

Shaan Raithatha,
Vanguard Senior Economist

Sources: Vanguard calculations, based on data from the European Central Bank and the Federal Reserve Bank of St. Louis FRED database, as of October 31, 2023.

United Kingdom

Our outlook for year-end 2024

0.5%–1%

Economic growth, 
year-over-year

Restrictive monetary policy is showing its effects through stalled economic growth and a slowdown in the labor market. Growth will be subdued as the effects of contractionary monetary and fiscal policy are fully felt. As inflation falls, however, we expect economic activity to receive a modest boost from gains in real wage growth.

2.6%

Core inflation, year-over-year

Goods prices have moderated encouragingly, but stickier services prices and wage inflation remain troublingly high. Inflation remains elevated compared with that of other developed markets. We foresee progress in 2024, but a longer road back to the 2% target set by the Bank of England (BOE).

4.25%

Monetary policy rate

With services inflation elevated and wage growth resilient, we expect interest rates will need to stay elevated for an extended period. We don’t foresee the BOE being in position to cut the bank rate until mid-2024 at the earliest.

4.5%–5%

Unemployment rate

The labor market has shown signs of loosening, and we anticipate further softening as restrictive monetary and fiscal policy weigh on growth. As in many developed markets, we view the prospect of a “painless disinflation”—inflation falling toward the central bank’s target without associated job losses—as unlikely. 

What Im watching


A softening but still-tight labor market

“With services inflation elevated and wage growth resilient, all eyes will be on the labor market in 2024. Key indicators suggest a softening recently, but the labor market remains historically tight. We’re mindful of data-reliability issues given low labor force survey response rates since the COVID-19 pandemic.” 


Shaan Raithatha

Shaan Raithatha,
Vanguard Senior Economist

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Notes: The first chart shows the number of vacancies divided by the number of unemployed. The second chart shows the number of vacancies divided by the total jobs available. 

Sources: Vanguard calculations, based on data from the Office for Natoinal Statistics, as of November 2, 2023.

Notes: All investing is subject to risk, including the possible loss of the money you invest. 

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