London forecast to lead growth, despite slower recovery

A much stronger-than-expected outturn for Q1, and evidence of momentum being sustained into Q2, has prompted us to raise our UK GDP growth forecast for 2024 to 1.1% from 0.6% in April. We still expect the economy will grow by 2% next year.

What you will learn:

• Following their victory in the general election, our forecast is now consistent with the policy pledges in Labour’s election manifesto. The manifesto committed to keep the existing net debt rule, and its policy changes were fiscally neutral and small in scale. Tighter fiscal policy will exert a significant drag on the pace of the economy’s recovery over the next few years. Labour’s ambition to build more homes may provide an economic boost, although the benefits accrued are likely to favour more prosperous areas resulting in increased regional inequalities.
• The ONS published subnational GVA data for 2022 in May, and whilst all regions recorded positive growth in 2022 as expected, London surprised on the downside. The capital failed to surpass pre-Covid-19 levels of output in 2022 as previously estimated, and it is one of only three regions to miss this milestone. A slower recovery of London’s air transport sector was one of the key reasons underpinning this weaker outturn.
• Over the medium term, UK economic growth is forecast to average 1.7% per year, with the private services sectors—business services and information & communication in particular—the driving force behind this expansion. Given this industrial composition of growth we expect the southern regions to benefit most, and therefore regional economic disparities are expected to widen rather than narrow. The same can be said for the labour market which will follow a similar trend to GVA over this time. In employment growth terms, London is forecast to experience growth almost twice the rate of Scotland—the region with the weakest outlook.