The British economy will be the best performing major economy in Europe by 2038, a new long range forecast shows. The Centre for Economics and Business Research (CEBR) predicted GDP growth in Britain will settle between 1.6 percent and 1.8 percent over the period to 2038.
Britain will also retain its position as the world’s sixth-largest economy, according to the CEBR. Under the consultancy’s world economic rankings, Britain’s economy will grow faster than France, Germany, Spain and Italy.
Pushpin Singh, senior economist at CEBR, told Bloomberg: “The fundamentals of the UK economy are still very much strong. London’s status as a financial and advisory services hub enduring, along with the wider strength of the services sector across the UK, will push UK growth.”
He added that the impact of Brexit on the UK economy have either been exaggerated or not “explored enough”.
Chancellor Jeremy Hunt said: “Those who talk down the UK are wrong. We have grown faster than any other major European economy since 2010 and the CEBR forecast us to grow faster than France and Germany in the longer term.
“By betting on Britain with tax cuts for hard working people and businesses who invest, we are making sure Britain is the best place to start and grow a business.”
Mr Singh told Bloomberg France will underperform the UK because of its large public sector and high tax levels. He said Germany’s manufacturing slowdown would help the UK narrow the gap.
The CEBR analysis also shows China overtaking the US to become the world’s largest economy in 2037 while Italy will drop out of the global top 10 by size. While the US and Germany slip down the ranking, India and Brazil will enter the top 10, the CEBR study shows.
While the CEBR expects Britain to narrow the gap with Germany and extend its lead over France over the long term, thie effects of the economic headwinds which contributed to Britain’s slowdown in 2023 are expected to linger in 2024.
This means Britain will endure “another year of relatively weak growth” with the CEBR projecting the UK economy to expand by just 0.5 percent next year. But “relatively sharp growth” of 1.9 percent is projected for 2025 with the loosening of monetary policy. The economy is then expected to settle at an annual trend rate of between 1.6 percent and 1.8 percent, according to the CEBR.
Meanwhile, Karen Ward, Chief Market Strategist for Europe, the Middle East and Africa at JP Morgan, told the BBC that 2023 has not been as bad for Britain as some analysts feared at the start of the year.
She added: “Of course it hasn’t been stellar. It hasn’t been a knock out year by any stretch. But the economy has still grown, marginally, and it’s created half a million new jobs. I think very few forecasters this time last year would have said that would happen. So I think it’s certainly true it hasn’t been as bad as feared.”
Asked how confident she felt that Britain could avoid a recession in early 2024, Ms Ward said: “I don’t think we can say confidently. One of the things we’ve learnt over the course of the year is that how interest rates impact the economy has changed.
“Particularly, a lot of households a few years ago took on fixed rate mortgages, which has insulated them from what the Bank of England’s been doing. But of course that’s until those fixed rate deals run off and they need to move onto new fixed rate deals. So, the impact of interest rates is possibly delayed, more than it is diminished.”
She said by JP Morgan’s estimate, 38 percent of households will face interest rate hikes, rising to 60 percent by the end of 2024. Ms Ward said: “That’s the concern. Some of those pressures are still to come.”
But she said it is possible if the British economy starts behaving in a similar way to that of the US, then the Bank of England may begin to bring down those mortgage rates.
The Bank of England has forecast zero growth for 2024 while the Office for Budget Responsibility downgraded its estimate to 0.7 percent. With inflation falling faster than expected the cost-of-living crisis should ease next year, while mortgage holders could benefit if the BoE does cut interest rates.
Prime Minister Rishi Sunak will be hoping an economic feel-good factor can help the Conservative Party’s chances at the next general election, with the prospect of pre-election tax cuts to woo voters. Such matters will prove pivotal for the PM in deciding whether to go for an election in spring or to hold out until the autumn, possibly October. Americans are also due to go to the polls in 2024.
Ms Ward said: “Elections do add to uncertainty. They can add to caution. I don’t expect… the UK’s election to be a big, global theme. Neither party [is] setting out economic or fiscal plans that I think will particularly trouble global investors.”
