Stagnation Continuation

The outlook for Britain was bleak at the start of 2023. The country was on its fourth prime minister in four years, after the brief rule of Liz Truss ended in financial turmoil. Even that political instability was a minor worry for many Britons, given high energy prices, rising interest rates and falling wages. Yet in the end, the worst that could be said for Britain’s economy in 2023 was that it went sideways. Growth was minimal – GDP increased by around 0.5 per cent – but stagnation, not disaster, was the outcome.

Can Britain expect to do better in 2024? Many of the challenges of the past year have faded. The cost of natural gas has fallen sharply, a big cause of the fall in inflation from 10 per cent in December 2022 to a forecast 4.5 per cent in the same month of 2023. Continued strength in the labour market means wages are now growing in real terms. The Bank of England has either finished raising interest rates – from 0.25 per cent in 2022 to 5.25 per cent in July – or will do so soon.