Budget 2024: the longer-term view – what does it mean for growth, inflation and interest rates?

Mar 14th 2024

In a Budget that delivered few surprises, it’s worthwhile to consider a broader and more holistic perspective. What impact will this Budget have on the UK’s economic growth, and in turn, how will this affect core inflation and interest rates?


What are the UK’s growth prospects?

The Office of Budget Responsibility (OBR) delivered a growth forecast of 0.8% for 2024, a marginal upward revision on its last projection in November 2023. Given that the UK is in technical recession at the time of writing, this sluggish trajectory is hardly surprising. Meanwhile, annual economic growth in the UK is projected to rise to 2% by 2026, with similar growth figures for the following two years. These forecasts should help to give the financial markets greater long-term confidence, after several significant economic shocks during the early 2020s.

That said, our view at Insignis Cash is that this is a shallow recession and key barometers that affect inflation and rate decisions remain surprisingly resilient.


What’s the story on inflation?

The latest figures demonstrate that headline inflation remained at 4% in January 2024 – although at Insignis Cash, we encourage our partners and clients to pay closer attention to core inflation figures. Core inflation strips out prices such as food and energy, which are volatile and difficult to influence. This figure remains more stubbornly high at 5.1%, though this is slightly lower than economists had forecast. Meanwhile, the OBR forecasts that inflation will drop to the Bank of England’s (BOE) target of 2% by autumn 2024.

Employment data published on 12th March showed an unemployment rate of 3.90%, and led to comments from the Bank of England that the UK appears to be near full employment.

The fundamental direction in 2024 remains lower of rates, although just how soon we will see these cuts is widely disputed. Previous predictions had suggested an initial cut as early as May; we anticipate that this may be too soon, given the current stubbornness of core inflation and the resilience of the employment market.


What can we expect in the longer term?

Paul Johnson, director of the Institute for Fiscal Studies, responded to the Budget by pointing out that the UK is “looking at a debt to GDP ratio that is at its highest level in 70 years, and is showing no signs of falling”. His analysis demonstrates that the UK is facing debt interest payments at close to all-time highs – and to compound this, Johnson also opined that the next parliament could face the most difficult term in terms of bringing down debt since the end of World War II.

The overall picture is very mixed, with a technical recession and yet resilience in other key data. As such, savers and investors face an uncertain few years ahead.


Working with Insignis Cash 

Our company is led by banking experts: chairman Paul Richards and CEO Giles Hutson have a combined 50 years’ experience in investment banking. We are proud to help our adviser partners navigate challenging economic waters. 

To find out more about working with Insignis Cash, get in touch.