The UK economy is forecast to grow at double the rate expected earlier this year, according to consultancy firm KPMG.
Gross domestic product (GDP) is now predicted to rise by 1% in 2023, up from the previous estimate of 0.5%, with growth set to continue at 1.2% next year, revised from 0.9%. Despite the Bank of England’s slow reduction of interest rates, KPMG said the UK base rate is expected to fall to 3.5% by 2025 from its current 5%.
Yael Selfin, KPMG UK’s chief economist, stressed that Chancellor Rachel Reeves must seize the upcoming autumn budget as an opportunity to drive stronger growth through increased public investment. Reeves has already stated that there will be no return to austerity under her watch, hinting at plans for increased capital spending and a rise in real public spending.
While the improved growth outlook is encouraging, KPMG highlighted potential headwinds, including a more cautious consumer base influenced by recent economic shocks like the Covid-19 pandemic and energy crisis. Consumer spending is expected to grow by only 0.4% this year and 1.4% next year, as many households prioritise savings over spending.
Reeves, speaking at the Labour Party conference, has acknowledged the challenge of closing a £22 billion deficit left by the Conservatives, which will require “difficult decisions” in the upcoming budget on October 30.