Economists Raise Growth Forecasts

Well football may not have come home (again), but economists have raised their forecasts for UK growth, partly caused by a lift from the Euros and strong recovery.

Goldman Sachs, Deutsche Bank and Barclays have revised their short-run GDP estimates for this year after official figures showed that the economy grew by 0.4% in May, which was double the 0.2% previously forecasted.

May was the sixth consecutive month that growth figures had exceeded economists’ expectations. The UK is now enjoying its fastest expansion of GDP in two years.

‘Financial services leaders’ (those in banking, insurance, assets, wealth and private equity seem to be more positive about the growth of the economy under the new government too, according to KPMG’s last quarterly Sentiment Survey. Finance bosses are apparently “buoyed by both the prospect of national change and continuity of financial services policy and reform” according to Karim Haji, global and UK head of financial services at KPMG.

GDP growth of 0.7% has been forecast by the Bank of England this year, which may well be revised at its next MPC meeting on 1 August.

Barclays are anticipating growth in the economy of 1.1% this year, up from 0.8%, with a further 1.1% growth in 2025. Goldman Sachs estimate 1.2% this year, and Deutsche Bank estimate 0.6% in the second quarter, double their 0.3% estimate, and leading to a 1.2% annual growth rate.

It’s potentially good news for interest rates too; traders have reduced their bets on an interest rate cut in August from 65% to under 50%. It is thought that about 80% of the rise in interest rates has already been passed through to borrowers and companies.

As we reported the other day, it is expected that the economy will get an extra boost from Euro 2024 in June and July, with increases in spending and hospitality.

Pantheon Macroeconomics, the consultancy, raised its second-quarter growth projection to 0.7 per cent between April and June, matching the pace recorded at the start of the year.

“The rebound has turned into a strong expansion,” Elliot Jordan-Doak at Pantheon said. “These dynamics are making the MPC’s life more difficult. The MPC could continue to dismiss data surprises, but it would be easing with growth above trend and services inflation way above target-consistent rates. We expect the Bank to wait until September to cut interest rates.”