Despite a recent recession, the UK economy is expected to grow in 2024. Here’s how this could affect you
After several years of predictions that it might, the UK economy fell into a shallow recession at the end of 2023. The good news is that the economy has already begun to show signs of recovery since then.
A recession, and the recovery from it, can affect your wealth in a few different ways. Read on to learn more about how the economy performed in 2023 and so far in 2024, and what could lie ahead for your finances.
The UK fell into a shallow recession in the second half of 2023
A recession is usually defined as a period of two consecutive quarters of negative economic growth.
The last time the UK fell into a recession was during the coronavirus pandemic. The BBC reports that Gross Domestic Product (GDP) fell by 20.4% between April and June 2020. This made it a very severe recession, but it only lasted for six months before the economy returned to growth.
Economists have been predicting another recession in the UK for quite some time as the Bank of England (BoE) raised interest rates to combat rising inflation. The economy eked out growth throughout these interest rate rises, up until Q3 of 2023.
In Q3 of 2023, the economy contracted by 0.1% between July and September, followed by a 0.3% contraction from October to December. CNBC reports that “persistent high inflation, structural weaknesses in the labour market, and low productivity growth” were most likely behind the recession in 2023.
The economy has returned to modest growth since the start of 2024
Fortunately, the economy is already showing signs of recovery. This is Money reports that the economy grew by 0.2% in January, a promising start to the year that suggests the recession may already be over. This has been attributed in part to a recovery in sales on the high street and increased activity in the construction sector.
Inflation has also continued to fall. The Office for National Statistics revealed that inflation rose by 3.4% in the 12 months to February 2024, down from 4% in January. The report explained that the cost of food has been a major contributor to the fall.
Of course, one month of positive economic growth doesn’t necessarily mean the recession is over; we’ll have to wait to see the data for February and March before we can say this with certainty. Even so, the signs so far are certainly looking more positive.
Interest rates are likely to fall later in the year but economic growth may be slow
The governor of the BoE has agreed that signs point to the economy recovering, and has confirmed that interest rates will fall in 2024, the Guardian has reported. He isn’t able to confirm when or by how much interest rates will fall, though.
Reuters reports that the BoE expects the economy to grow by 0.25% in 2024, and 0.75% in 2025. While this is positive growth, it’s a long way behind the average annual economic growth the UK experienced prior to the 2008 financial crisis.
Source: Reuters
The anticipated economic performance in 2024 could affect your finances in a variety of ways
If things play out the way the BoE predicts, you may notice both positive and negative effects on your wealth.
Lower interest rates could mean your cash savings grow more slowly, meaning that the buying power of your money falls.
The cost of borrowing could fall, so if you are on a variable-rate mortgage, your lender might choose to reduce your rate. If you’re on a fixed-rate mortgage that you took out when interest rates were higher, you may be able to negotiate a more favourable rate when you come to remortgage.
Inflation could continue to fall, so though prices will continue to rise, it will be at a slower pace than in recent years.
A general election could create market volatility, potentially affecting your investments. Remember that any volatility is likely to be short-lived.
Get in touch
If you’re concerned about how economic performance could affect your wealth, we can help. Our friendly team of advisers are based in Towcester and are happy to help if you have questions about your investments, savings, retirement planning, or other financial matters.
Email theteam@fortitudefp.co.uk or call us on 01327 354321.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.