A convincing case for the British economy

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„Grey gloom” is not the front-page headline many Britons want to read at the start of the new year. But the phrase sums up the economic mood, according to the Financial Times' annual survey of economists. It's easy to see why. The UK economy shrank in the third quarter of last year, at the height of recession. It is expected to grow by around half a percent in both 2023 and 2024, as the impact of higher interest rates and higher price levels squeezes households and businesses.

Economists are a pessimistic bunch. This time last year a similarly bearish outlook turned more pessimistic. Inflation fell faster than expected and unemployment did not rise as expected. The revisions to GDP show that Britain's post-pandemic recovery is in line with G7 peers and not as bad as previously forecast. Looking ahead, there are reasons why the pessimistic outlook for Britain may weaken.

First, Britain begins 2024 with a more stable policy outlook than in recent times. Given the political turmoil since 2016, this may be a low bar, but the government has overseen an improvement in the business climate over the past year. Relations with the EU have improved, and the UK has rejoined the Horizon Europe science and research programme. The full cost of capital investment was made permanent in the Autumn Statement. The UK's capital allowances are now the most generous in the OECD, and businesses are spending again. Investment finally took off Over levels Before the Brexit vote.

The UK is one of the few major economies with an election this year between two relatively centrist parties, with no far-right party challenging power. Prime Minister Rishi Sunak has admitted to putting vote-stripping over economic interests in some areas, including policies to reduce legal immigration. But the two main parties are engaged in reasonably constructive discussions about how to boost long-term growth, including reforming byzantine planning laws and rethinking whether UK pension funds can invest more effectively. According to opinion polls, a significant victory for the Labor Party indicateIt also indicates continuity in the medium term.

A move to calmer waters attracts investors. Especially if global economic conditions improve, the economy could see a good upswing. Less than 50 percent of executives were surveyed Ernst & Young In June, the UK's attractiveness for business was expected to rise over the coming years. Many businesses have now adjusted to costly EU trade arrangements, and at the cost of so much negative news, cheap UK stocks could see a rebound in valuations. Real-term wage growth and steeper-than-expected cuts in interest rates may also provide a boost to near-term economic activity.

Britain also has many strengths. It maintains a comparative advantage in finance and professional services and is unique in having several world-class universities across the country – along with its finance sector, which helps it attract global talent. London remains the same The largest center Europe has a significant opportunity for start-ups, namely job creation and innovation. The UK is also developing an expertise in life sciences, advanced manufacturing and renewable technologies. It is already a leader in offshore wind.

Low growth and high rates paint an undeniably bearish picture for next year. But continued policy stability for businesses and prudent measures to improve existing benefits and emerging sectors mean that the „gray gloom” is beginning to lift.