The United Kingdom is a high-income country with an expected PPP-adjusted GDP per capita of
$56,836 in 2023. The economy is predominantly services-based. The UK economy ranks as the
world’s sixth largest as of 2023. 2024 will represent the fourth year since the UK’s departure from the
European Union (EU).
The UK economy expanded by 4.3% on the year in 2022, reflecting the continued resurgence in
demand after pandemic-related disruption in the year prior. However, 2023 has been a year of
relative weakness. Growth is expected to have slowed to just 0.4%.
Various economic headwinds have contributed to the UK’s recent growth slowdown. Like much of the
global economy, the UK has contended with supply-side headwinds, notably from elevated input
prices and disruption to supply chains. These effects have translated into consumer price pressures.
In 2023, prices were up by an estimated 7.5% relative to the previous year, a slowdown relative to
2022’s inflation of 9.1%, but still firmly above historical averages.
In response to elevated inflation, the Bank of England has acted similarly to other major central
banks by raising rates. In the space of just two years, the Bank of England’s base rate has been hiked
from a record low of 0.1% to 5.25%, where it is expected to remain until the middle of 2024. By
making borrowing more expensive, this tighter interest rate environment is discouraging investment
and spending, thereby contributing to weaker output. Higher interest rates are also expected to have
other effects on the UK economy, notably in the housing market, where prices have started to show
annual declines in recent months. Nevertheless, the tighter policy environment is having a tangible
impact on inflation, with price growth expected to slow further into 2024 and beyond.
The growth slowdown in 2023 has been accompanied by a slight weakening of the labour market,
with the unemployment rate rising by 0.5 percentage points on the year. The unemployment rate is
still relatively low, however, at 4.2% across the year. This historically low rate has supported elevated
rates of nominal earnings growth. Though such rates are projected to slow next year, wage growth
becoming embedded into the economy could pose a risk to the inflation outlook, particularly for
services, given the outsized contribution of labour to business costs. The economy’s composition,
being majority services-based, makes the UK disproportionately exposed to this potential risk
Nominal wage growth has been strong in 2023. This has supported continually positive consumption
growth, albeit at a reduced rate. Certain industries have felt the slowdown in consumption growth
harder than others, with consumer-facing services being particularly impacted. For instance, retail
sales volumes are expected to have fallen over 2023.
The effects of the economic headwinds contributing to the UK’s slowdown in 2023 are expected to
linger into 2024, leading to another year of relatively weak growth. Cebr projects the UK economy to
expand by just 0.5% next year. Relatively sharp growth of 1.9% is projected for 2025 as monetary
policy loosens, before the economy settles at an annual trend rate of between 1.6% and 1.8% for the
remainder of the forecast horizon. This trajectory would see the UK retain its WELT position of 6th.
