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Britain’s economy is set to grow faster than expected this year – but is not “heading into the fast lane” yet as uncertainties continue to weigh, according to a report.
The British Chambers of Commerce (BCC) has upgraded its UK growth forecast to 1.1% in 2024, up from the 0.8% previous projection.
It kept its forecast unchanged for 2025, at 1% but upgraded the prediction for 2026 to 1.1% from 1% previously.
The upgrade follows official figures recently estimating that the economy grew by 0.6% in the second quarter after 0.7% expansion in the previous three months.
It marked a solid rebound from the shallow recession seen at the end of last year.
The BCC said it was now pencilling in growth of 0.4% in the third quarter, but warned that the momentum would tail off in the fourth quarter and beyond.
It is expecting growth to halve to 0.2% in the final three months of 2024.
Vicky Pryce, chair of the BCC economic advisory council, said: “While the UK economy will perform better this year, it’s unlikely to be heading into the fast lane any time soon.
“Although domestic demand should be helped by a gradual reduction in interest rates and by rises in real wages as inflation stabilises, firms will still struggle to invest.
“This is due to continuing global economic and political uncertainty, alongside a downbeat government assessment of its fiscal position and warnings of tough decisions in the budget.”
While further interest rate cuts are due, with another before the end of 2024, the BCC warned the Bank of England would “adopt a more cautious approach” and deliver a series of smaller 0.1 percentage point reductions.
The Bank cut rates by a quarter point from 5.25% to 5% in August, marking the first reduction in four years.
The BCC also cautioned that inflation will rise to 2.6% by the end of the year as energy costs edge up again and amid global trade uncertainties.
Consumer Prices Index inflation will come back closer to the Bank’s 2% target next year, reaching 2.2% in the fourth quarter of 2025, it forecast.
Average earnings will remain above inflation, despite salary growth slowing to 4% by the end of 2024 and remaining there through next year, according to the BCC.
The UK’s rate of unemployment will also tick up, to an average of 4.4% in 2025 from 4.3% on average this year, it said.
The BCC said: “The overall growth landscape remains relatively weak, with government spending the main driver of gross domestic product this year.
“Household consumption is expected to increase significantly in 2025 as the impact of lower inflation and interest rate cuts kick in.”
David Bharier, head of research at the BCC, added: “Widespread uncertainty could weigh down on growth expectations for 2025 and 2026.
“Major global conflicts, trade tensions, and an impending US election could all feed into a climate of hesitation for firms, particularly those involved in global trade.”