Investec hosted an exclusive breakfast event yesterday (23rd January 2025) to discuss predictions for the UK economy in 2025, outlining the potential for tentative growth, and the likelihood of further base rate drops as the year progresses.
The event, led by Peter Izard (pictured, left), head of intermediary business development at Investec, and Philip Shaw (pictured, right), chief economist at Investec, provided attendees with predictions for the UK housing market, interest rates, inflation and the wider geopolitical environment.
Shaw revealed that the UK economy was close to a technical recession in Q2 2024, with gross domestic product (GDP) stagnating in Q3 2024.
He said: “I think the idea of a UK recession is incorrect.
“That said, the Government is aiming to try and boost UK growth in the long term to 2.5% per annum.
“Are we anywhere near that? The answer is absolutely nowhere near.”
Shaw added that when stripping out more volatile factors such as energy prices, base inflation sat at 3%-plus, not near the Bank of England’s 2% target, but that it “will get there” in time.
He explained that volatility has gone in both directions for the UK economy, with the FTSE 100 reaching an “all-time high” despite sterling falling back against the US dollar.
Shaw projected that the economy (GDP) will grow by 0.8% in 2025.
He said that the Bank of England would likely lower the base rate four times in 2025, by 0.25% each time, and that a cut on 6th February would be a near certainty.
Shaw identified key issues impacting the economy, such as National Insurance (NI) hikes affecting business confidence, and ongoing global economic turbulence.
Overall inflation is expected to rise in the near term, with projections indicating it could peak above 3% in the next six months due to various factors, including changes in energy prices.
The current consumer prices index (CPI) inflation stands at 2.5%, down from a high of 11.1% in 2022, but up from a low of 1.7% in September.
The potential for reduced inflation depends on the policies of the Labour Government, with a potential forecast of 2% inflation for 2026.
While the outlook for the economy remained uncertain, Shaw predicted that it would continue to grow and likely avoid a technical recession.
Shaw described the Labour Government’s target of 1.5 million new homes as “very unrealistic,” but acknowledged that any success in this area could significantly boost the economy.
For the housing market more generally, Shaw noted that mortgage approvals were up 31% year-on-year, and are approaching their 10-year average, showing a positive trend in the context of the past decade, despite some negative rhetoric.
He noted that there was a likelihood that the regulators would work to encourage lenders and loosen criteria in order to support the housing market.
An interactive poll at the end of the event revealed that 91% of attendees expected their business to grow in the next 12 months, a 10% increase from the poll conducted at its previous event in October 2024.
Additionally, 8% anticipated no change and 1% expected a decrease in business growth.
