The British Chambers of Commerce (BCC) has revised its economic forecast for 2024, upgrading expectations for UK growth in the face of a surprisingly resilient economy.

According to its latest Quarterly Economic Forecast (QEF), the UK economy is now expected to grow by 1.1% in 2024, up from the 0.8% predicted earlier this year. However, the growth forecast for 2025 remains at 1%, with only a minor improvement to 1.1% for 2026.

The QEF, which recently won the 2024 FocusEconomics award for the best GDP forecast, presents a mixed picture.

While 2024's upward revision reflects a stronger-than-expected performance in the first half of this year, growth is expected to remain subdued, driven largely by government spending rather than robust private sector investment.

Slow but Steady Growth Ahead

The UK economy managed to recover faster than anticipated after a brief recession in 2023. Growth figures from the Office for National Statistics (ONS) show a 0.6% increase in Q2 2024, with the BCC now forecasting 0.4% growth for Q3. However, this momentum is expected to fade, with quarterly growth slowing to just 0.2% by the end of the year and remaining weak throughout 2025.

Business investment, a key indicator of long-term economic health, has been revised downward for 2024, with an expected growth of only 0.3%. This is set to improve slightly in the following years, with a 1.4% increase in 2025 and 2% in 2026, reflecting ongoing challenges for businesses amid global uncertainty.

"The UK economy will perform better this year, but it’s unlikely to be heading into the fast lane anytime soon," said Vicky Pryce, Chair of the BCC Economic Advisory Council. She noted that while domestic demand should improve with falling inflation and lower interest rates, firms are still hesitant to invest due to lingering global and political uncertainties.

Inflation and Interest Rates: A Balancing Act

Inflation remains a concern, with the BCC expecting it to hit 2.6% by the end of 2024—slightly higher than previous forecasts—due to rising energy costs, pay growth, and global trade disruptions. However, inflation is expected to fall closer to the Bank of England’s 2% target in subsequent years, reaching 2.2% by Q4 2025 and 2.1% in Q4 2026.

Following the Bank of England’s first interest rate cut in August, the BCC predicts further gradual cuts, with the base rate expected to fall to 4.9% by the end of 2024 and continuing down to 4.3% in 2025 and 3.8% in 2026. These cuts should provide some relief to businesses and consumers, boosting household consumption and stabilizing the economic outlook.

Trade and Investment Challenges Loom Large

The BCC’s forecast underscores the persistent challenges facing UK trade, with imports and exports expected to contract by 0.6% and 1.1%, respectively, in 2024. Trade barriers with the EU and broader global tensions continue to weigh on the UK's export potential, though modest growth in trade is expected to return in 2025 and 2026.

David Bharier, Head of Research at the BCC, warned that ongoing global conflicts and trade tensions could cloud growth prospects. "Widespread uncertainty could weigh down growth expectations for 2025 and 2026," Bharier said. "Firms will be looking to next month’s Budget as an opportunity for the government to boost business growth and maintain competitiveness."

Unemployment and Wages: A Mixed Picture

Unemployment is expected to remain relatively stable, with a forecast rate of 4.3% in 2024, rising slightly to 4.4% in 2025 before easing to 4.1% in 2026. However, youth unemployment remains a major concern, with rates forecast to stay stubbornly high at over 13% for the next three years.

On the wage front, the BCC expects earnings to continue outpacing inflation, with average wage growth forecast at 4% in both 2024 and 2025, before slowing to 3.5% in 2026. While this offers some relief for households, wage pressures could complicate efforts to bring inflation down further.

Government Urged to Focus on Investment

As the UK prepares for its next fiscal budget in October, the BCC is urging the government to prioritize measures that stimulate business investment, support economic growth, and ensure long-term competitiveness. With global uncertainty casting a shadow over the economic outlook, businesses will be watching closely for signs that the government is ready to support their efforts to navigate these turbulent times.

For now, the UK's economic future remains one of cautious optimism. Growth may be on the horizon, but the road to recovery is far from smooth.