UK Households Face Stagnant Living Standards for Second Year

UK households face stagnant living standards in 2024 despite modest economic growth, as inflation, tax burdens, and rising economic inactivity due to long-term sickness pose challenges to the country's recovery.

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UK Households Face Stagnant Living Standards for Second Year

UK Households Face Stagnant Living Standards for Second Year

UK households are facing a second consecutive year of stagnant living standards in 2024, according to the International Monetary Fund (IMF). The IMF forecasts modest 0.5% growth in the UK economy this year, but growth per head is expected to remain flat after a 0.3% drop in 2023.

The UK's tight labor market may have contributed to higher inflation compared to the US and eurozone. However, the IMF expects a pick-up in the UK economy in 2024, with growth rising to 1.5% in 2025 as disinflation allows financial conditions to ease and real incomes to recover.

Despite the projected economic recovery, UK households will continue to face challenges. The state pension is set to increase by 8.5% in April, but frozen thresholds mean pensioners will be paying more tax. Inflation is forecast to fall faster than initially expected, with the IMF projecting it to drop to 2.5% this year and 2% in 2025, hitting the Bank of England's target.

Why this matters: The stagnant living standards in the UK have broader implications for the country's economic recovery and the well-being of its citizens. The challenges faced by households, such as rising tax burdens and the lingering effects of high inflation, highlight the need for effective policies to support economic growth and improve living standards.

The UK is set to be one of the slowest growing major economies this year, with GDP forecast to rise just 0.5% before increasing to 1.5% next year. Per capita GDP is expected to flatline in 2024 with no growth at all, and only 1.1% in 2025. The global economy is projected to grow by 3.2% this year and next, led by the US, but the UK and Germany are expected to be among the slowest growing economies.

The IMF believes the Bank of England will be cautious about cutting interest rates, with only two 0.25 percentage point cuts penciled in for this year. The UK's post-pandemic jobs recovery has fallen further off course, with employment and payrolled jobs both falling, while working-age economic inactivity reached its highest level since 2015.

The number of people classified as economically inactive due to long-term sickness has increased by around 700,000 since the start of the COVID-19 pandemic, reaching a record number of more than 2.8 million. This trend of increasing economic inactivity due to long-term illness has been steadily rising since the beginning of the pandemic.

Key Takeaways

  • UK households face stagnant living standards in 2024, per IMF forecast.
  • UK economy projected to grow 0.5% in 2023, 1.5% in 2024, slower than global average.
  • Inflation expected to fall to 2.5% in 2023 and 2% in 2025, meeting BoE target.
  • UK jobs recovery lags, with rising economic inactivity due to long-term sickness.
  • BoE likely to be cautious in cutting interest rates, with only two 0.25% cuts expected.