UK Growth Outlook Brightens: JP Morgan Raises Forecasts After Strong GDP Data
JP Morgan has revised its economic growth forecasts for the UK upwards, following the release of strong GDP figures last week. The investment bank now predicts that the UK economy will grow by 0.4% in the third quarter of 2024, up from its previous estimate of 0.3%. This translates to an annualised growth rate of 1.5%.
This upward revision comes on the heels of a positive week for UK economic data. Figures released last Thursday revealed that GDP expanded by 0.6% in the second quarter, continuing the UK's surprisingly robust start to 2024.
Despite the positive headline figures, JP Morgan acknowledges that underlying growth may be softer than initially perceived. Consumer spending, a key driver of economic activity, only increased by 0.2% in the second quarter. However, the bank notes that these figures are often subject to revision and expects relatively strong growth in the coming months.
Encouraging signs are emerging from the retail sector. July's retail sales figures, released on Friday, showed a 0.5% month-on-month rise in sales volumes. This suggests that the consumer spending resurgence observed in the first half of 2024 is continuing into the third quarter, according to Allan Monks, an economist at JP Morgan.
The bank's optimism is further fuelled by an improving outlook for consumers. Wage growth remains robust, even as inflation has returned to the Bank of England's target. A resilient labour market is expected to further bolster consumer spending in the months ahead. "We continue to see positive fundamentals due to growth in real incomes and rising household confidence," Monks noted.
The overall consensus for UK economic growth has shifted considerably since the start of the year. While most economists initially predicted growth of around 0.4%, the current consensus is closer to 1.0%.
Despite the positive outlook, JP Morgan anticipates that the stronger growth and a slight uptick in inflation will likely slow the pace of interest rate cuts. The Bank of England has already begun easing monetary policy, cutting interest rates for the first time since the pandemic earlier this month. However, Governor Andrew Bailey has stressed that rate-setters will proceed with caution in the coming months.
"The Bank of England has good reason to remain cautious on rates," Monks remarked. The bank's revised forecasts signal a more optimistic outlook for the UK economy, despite potential headwinds on the horizon. As the year progresses, further data releases will provide more clarity on the trajectory of the UK's economic performance.
