Our economic outlook for the United Kingdom

June 25, 2024

Our outlook for year-end 2024


Economic growth,
year over year

The U.K. economy emerged from a brief recession in the first quarter amid gradually rising real incomes, loosening financial conditions, and increased activity in the euro area. However, headwinds from still-restrictive monetary and fiscal policy are likely to keep growth significantly below trend.


Core inflation, year over year

Sticky services inflation skews risks to the upside even as the disinflation process continues for core goods, energy, and food. Year-over-year headline inflation slowed in May to the 2% target set by the Bank of England (BOE). But its pace is likely to tick higher as certain price declines last year fall out of annual comparisons. Recent data suggest a slower pace of wage-growth moderation than we previously anticipated.


Monetary policy rate

We anticipate a quarterly cadence of quarter-point cuts by the BOE beginning in August, leaving the bank rate at 4.75% to end 2024 and 3.75% to end 2025. The BOE may be constrained by the Federal Reserve likely keeping rate cuts remaining on hold in 2024 and the European Central Bank potentially being unable to cut rates as much as domestic conditions might warrant.


Unemployment rate

Soft factors such as reduced vacancies and fewer hours worked, rather than an increase in unemployment, are driving the labor market’s gradual loosening.

What Im watching

Sticky measures of underlying inflation

Three measures of underlying inflation have slowed in 2024 but remain elevated and inconsistent with the BOE’s 2% inflation target. A continued deceleration in all three will be necessary for the BOE to feel comfortable about cutting interest rates this year.

Shaan Raithatha

Shaan Raithatha,
Vanguard Senior Economist

Notes: CPI is the Consumer Prices Index. Core CPI excludes volatile food, energy, alcohol, and tobacco prices. Private sector wages as presented exclude bonuses.

Source: Vanguard calculations using data from the U.K. Office for National Statistics as of June 20, 2024.

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

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