What can we expect from the UK economy in 2024 after recession?

London: British Prime Minister Rishi Sunak suffered a pre-election setback on Thursday when data showed the economy fell into a recession in the second half of 2023, but his finance minister Jeremy Hunt said the outlook for this year was brighter.

Sunak is expected to opt for an election in October or November when inflation is forecast to be lower than now and the economy growing again, albeit slowly.

There is also a strong chance that the Bank of England will start cutting interest rates around the middle of 2024.

Following are graphics showing what is expected to happen to some of the key indicators of the economy this year.

ECONOMY TO RETURN TO GROWTH, SLOWLY

Britain's economy has been stagnating for around two years after its coronavirus slump and recovery.

The BoE expects output will grow by just 0.25% in 2024 and 0.75% in 2025, much weaker than annual growth of around 3% in the decade before the 2007-09 financial crisis and below even its rate during the 2010s, a period marked by public spending cuts.

Finance minister Hunt has said previous forecasts for Britain's economy have proven wrong and his plans for the economy are working.

GROWTH MOMENTUM TO PICK UP OVER 2024

Sunak and Hunt might take some comfort from forecasts
showing the economy is likely to gather a bit of pace as 2024
goes on.

Analysts polled by Reuters last month expected growth of
0.1% in the first and second quarters of the year, picking to
0.2% in the third and fourth quarters, when the election is most
likely to be held.

That would still be far slower than average quarterly growth
of about 0.5% growth in the five years before the coronavirus
pandemic.

Hunt is widely expected to announce further tax cuts in his
March 6 budget which could accelerate growth.

INFLATION TO FALL BACK TO 2%

Inflation hit a 41-year high of 11.1% in October 2022,
contributing to a squeeze on the finances of households. After
drifting down slowly at first, it has fallen more sharply in
recent months and looks set to hit the BoE's target soon
although it is expected to edge up again later this year.

With wages rising faster than inflation - they increased by
about 6% in annual terms at the end of last year - the incomes'
squeeze will soften a bit. Measures of confidence among
consumers have picked up in recent months.

But it will be 2027 before poorer households recover their
pre-pandemic spending power, according to the National Institute
or Economic and Social Research, a think tank.

UNEMPLOYMENT TO RISE, BUT LESS THAN FEARED

Unemployment is expected to rise as 2024 goes on as the
impact of the BoE's steep run of interest rate hikes between
December 2021 and August last year hits businesses.

But the BoE this month revised down its forecast for the
jobless rate for the end of 2024 to 4.6% from a previous
estimate of 4.9% as it adjusted its projections to the sharp
fall in inflation expected in the coming months.

At 4.6%, unemployment would be a lot lower than it has been
in the past. In 2011, when Britain was still recovering from the
global financial crisis, the jobless rate averaged 8.1%.

ONLY A LITTLE RELIEF FOR LIVING STANDARDS

Sunak and Hunt announced a tax cut for workers last November
with a reduction in social security contributions that began in
January. Lower-income households will get another boost in April
when the minimum wage goes up by almost 10%.

However, real household disposable incomes remain on course
for the only fall from one election to the next since World War
Two, according to the Resolution Foundation think tank. The last
general election was in December 2019.

The government says much of that pain is due to its attempts
to repay the huge costs of supporting the economy and households
during the pandemic and the energy price surge in 2022.

MORE GIVEAWAYS?

Sunak and Hunt have made it clear that they want to cut
taxes again for households and businesses and they are crunching
the numbers before the March 6 annual budget statement.

The Financial Times reported on Wednesday that Hunt was
considering cutting billions of pounds from already stretched
public spending plans to fund tax cuts in his budget, if the
public finances prove too tight to do it any other way.

The Resolution Foundation estimates the 13 billion pounds
($16.3 billion) of room that Hunt had for tax cuts or extra
spending after his November budget update was less than half the
average for most of his predecessors since 2010.

(Writing by William Schomberg
Graphics by Sumanta Sen; Editing by Susan Fenton)