UK economy expected to be weak into 2024 despite Truss growth agenda | Economic growth (GDP)

The UK economy is expected to take 2024 to recover to pre-Covid levels, while hiring and business investment slow as households and businesses grapple with rising costs.

Business leaders have said there has been a sharp fall in key economic indicators in recent weeks, with corporate bosses’ confidence in growth prospects falling to the lowest since the depths of the Covid crisis.

In a bearish assessment, analysts at Deutsche Bank said it would take 2024 for UK GDP to return to pre-pandemic December 2019 levels, raising the prospect of limited economic progress before the next election.

Liz Truss used her speech to the Conservative Party Conference in Birmingham to argue that her government would prioritize “growth, growth, growth” while attacking what she called an “anti-growth coalition” that was sweeping the country could hold back.

The PM said she wants to break a “high tax, low growth cycle” by offering lower taxes and scrapping rules to encourage households to spend and businesses to invest in the UK economy.

The promise to restart growth comes at a difficult time, however, as official figures show the economy remained 0.2% below pre-Covid levels at the end of June. With energy prices rising and global growth slowing since the start of the Russian war in Ukraine, the Bank of England has said the economy is on the verge of a recession and will make limited progress over the next year.

The British Chambers of Commerce (BCC) highlighted the risks to the economy with inflation at a 40-year high, saying more than three-quarters of businesses in a survey of 5,200 firms had not increased investment in the past three months .

A study conducted before the government announced its energy stimulus package and mini-budget plans saw a sharp drop in business confidence last quarter. As many as four in ten companies said they thought their profitability would fall over the next 12 months.

Shevaun Haviland, the BCC’s director-general, said that while the government’s support measures are welcome, ministers urgently need to provide more details on how their policies would help companies to expand.

“Our findings paint a worrying picture of the position of many UK firms. Almost all key business indicators are trending down — that’s ringing alarm bells across sectors and regions,” she said.

Separate figures from the Recruitment and Employment Confederation and accounting firm KPMG showed a further slowdown in hiring activity among employers to the weakest levels since the final Covid-19 nationwide lockdown in early 2021.

Claire Warnes, Head of Education, Skills and Productivity at KPMG UK said: “Increasing economic uncertainty has also resulted in workers choosing to stay in their current roles rather than apply for new roles, leading to a Moderating the overall rate of leads to vacancy growth.”

Register for business today

Get ready for the workday – we’ll snap you up every morning with all the business news and analysis you need

Data protection: Newsletters may contain information about charities, online advertisements and content sponsored by third parties. You can find more information in our data protection declaration. We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply.

Deutsche Bank said the government’s tax cuts and energy stimulus program would help boost Britain’s GDP by about 0.5 percentage points next year compared to its earlier forecasts. However, higher interest rates from the Bank of England would hurt GDP by almost 0.8 percentage point compared to its earlier estimates.

Sanjay Raja, senior economist at Deutsche Bank, said: “Tightening financial conditions… will offset much of that [the] Profits in fiscal policy. Household spending and business investment are likely to be slightly lower than we previously expected, especially as unemployment is expected to rise from next year.”

He said UK GDP growth is expected to slow to 3.5% this year, down from a previous estimate of 4.5%. The economy is expected to contract by 0.5% next year, compared to a previous estimate of zero progress, before expanding to 1% in 2024.

Rather than the UK getting closer to Truss’ growth target of 2.5% per year, Deutsche Bank said the country’s growth rate will settle closer to 1.25% per year by mid-decade.

“Any noticeable impact on the economy will take time to materialize,” Raja added. “And any significant increases in supply (labour, capital, productivity) are unlikely to translate into stronger growth until the second half of the decade.”