Gross domestic product (GDP) is now predicted to rise by 1% in 2023, up from the previous estimate of 0.5%, with growth projected to continue at 1.2% next year, revised from 0.9%.
Despite the Bank of England’s gradual reduction of interest rates, KPMG has stated that the UK base rate is expected to decline to 3.5% by 2025 from its current 5%. Yael Selfin, KPMG UK’s chief economist, emphasised that Chancellor Rachel Reeves must utilise the forthcoming autumn budget to foster stronger growth through increased public investment.
Reeves has already indicated that there will be no return to austerity under her leadership, suggesting plans for augmented capital expenditure and a rise in real public spending. While the improved growth outlook is promising, KPMG has underscored potential challenges, including a more cautious consumer base influenced by recent economic shocks such as the Covid-19 pandemic and the energy crisis.
Consumer spending is anticipated to grow by merely 0.4% this year and 1.4% next year, as many households prioritise saving over expenditure. Speaking at the Labour Party conference, Reeves acknowledged the difficulty of addressing a £22 billion deficit inherited from the Conservatives, which will necessitate “difficult decisions” in the upcoming budget on October 30.
While the UK’s economic prospects appear brighter with revised growth forecasts, the necessity for enhanced public investment and prudent fiscal decisions remains paramount to sustain this momentum.