Leading UK economist cautiously confident about UK growth

Author - Courtney Hiles

Date published:

A leading UK economist told Chamber members he is cautiously confident about the UK’s economic outlook, outlining the economic landscape beyond 2025.

Daniel Mahony, UK economist at Handelsbanken UK, addressed 150 senior leaders from some of the most influential businesses across the North East at our 1815 Lunch.

Daniel provided members with analysis about the forthcoming Budget and outlined the potential impact of the US election on the UK.

Daniel said: “Our base case view is that we will see moderate growth in the UK economy over the next couple of years.

“The strong growth seen in the first half of 2024 has more than compensated for the shallow recession at the end of 2023.

“UK business investment has bounced back to pre-pandemic levels, although continues to lag the G7 as a percentage of GDP.”

Daniel outlined how real wage growth has been positive for over a year and that this is expected to continue for the rest of 2024. Despite retail sales falling following the invasion of Ukraine, there has been a cautious upward trend in this area since the beginning of the year.

Daniel told Chamber members that GDP growth seems to be slowing in the second half of 2024, adding: “A growth forecast of 1.6% in 2025 and 2026 is reasonable given the shocks that have hit the UK, but would be below the pre-pandemic 2010-19 average of 2%.”

On inflation, he said: “Headline inflation has fallen below 2% but is due to jump up again by year end – particularly due to base effects in the energy component of inflation.”

Daniel said factors such as economic inactivity and changes in services inflation could still affect the UK as some of the more “sticky” features of inflation.

He said: “An interest rate cut in November is now a near certainty. Our base case scenario continues to be for interest rates to drop to 3% by mid-2026 at a pace of around one 0.25 cut per quarter.”

Daniel also shared challenges faced by Europe’s major economies, as well as geopolitical concerns, particularly changes in natural gas and oil prices, and shipping costs.

Gary Potts, vice principal of the event sponsor Middlesbrough College Group, emphasised the college’s vital role in addressing the skills needs of the Tees Valley and the wider North East, and highlighted the importance of aligning strategies with local economic demands.

He said: “It’s incumbent upon everyone in this room to create opportunities for their workforce to learn and develop, to ensure that everyone can reach their potential and drive social and economic prosperity in the region.

“By working with businesses, colleges can help build a future for the North East that is underpinned by a strong and skilled workforce.”

Chamber president Deborah Walton shared the Chamber’s recent policy work. Ahead of the Budget, our chief executive John McCabe wrote to Chancellor Rachel Reeves calling for action to support a stronger, fairer North East across skills, investment and reform.

Asks included keeping business rates policy under review and delivering reform, targeted funding and support for SMEs to grow capacity and capability to trade worldwide, and long-term funding for further education colleges and the continuation of Local Skills Improvement Plans to deliver the skilled workforce required for the region’s future industries.

The 1815 Lunch took place on Wednesday 23 October at Hardwick Hall Hotel and was sponsored by Middlesbrough College Group.

Image caption: (l-r) Gary Potts, vice principal at Middlesbrough College Group; Deborah Walton, Chamber president; Daniel Mahony, UK economist at Handelsbanken UK, at the 1815 Lunch.

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