Economic Outline

Economic Indicators

The United Kingdom is the sixth-largest economy in the world. According to the ONS, in 2024, GDP grew by 0.8%, following a 0.4% increase in 2023. Services led the growth with a 1.3% rise, while construction and agriculture, forestry, and fishing saw increases of 0.4% and 1.0%, respectively. However, production fell by 1.7%, with all four subsectors declining. Twelve of the twenty industry subsectors grew, with professional, scientific, and technical activities (3.2%) and human health and social work activities (2.9%) leading the way. The largest decline came from mining and quarrying, which dropped by 7.2%. According to the EU Commission, GDP is expected to grow by 1.4% in both 2025 and 2026. Private consumption is forecast to increase by 1% in 2025 and 1.4% in 2026. Investment is projected to rise slightly in 2025 and 2026, supported by lower interest rates, especially for residential investment. Imports and exports are expected to grow modestly, with goods trade remaining weak due to post-Brexit supply chain issues and the real exchange rate appreciating in 2024. Net trade is not anticipated to significantly drive growth.

According to official governmental figures, borrowing for the financial year ending December 2024 was GBP 129.9 billion, GBP 8.9 billion higher than the previous year, marking the second-highest borrowing since monthly records began in January 1993. Public sector net debt, excluding public sector banks, was provisionally estimated at 97.2% of GDP by December 2024, up 0.3 percentage points from December 2023, remaining at levels last seen in the early 1960s. The new UK government's budget, presented in October 2024, plans a significant increase in public current and investment spending, about 2% of GDP by 2026, funded by higher taxes and increased borrowing. As a result, total public expenditure is projected to decline only slightly as a share of GDP in 2025 and 2026, while total receipts as a share of GDP are expected to rise. The general government deficit is forecast to narrow slowly, remaining around 4% in 2026, with overall government debt continuing to rise throughout the forecast period (EU Commission). Prices in the UK rose by 3% in the 12 months to January, pushing inflation further from the 2% target of the Bank of England, which has made three cuts since August 2024. CPI was 3% for the year to January 2025, up from 2.5% in December, mainly due to rising food prices, VAT on private school fees, and airfares not decreasing as expected. In announcing the latest cut, the Bank warned that inflation was expected to rise again in 2025.

The UK labour market has shown moderate signs of loosening recently, with vacancies continuing to fall and now at pre-pandemic levels. The unemployment rate was 4.4% in 2024, with 1.56 million people aged 16+ unemployed, up by around 210,000 over the year (ONS). With tepid GDP growth expected in the coming quarters, labour market slack is anticipated to rise, and nominal wage growth is projected to slow gradually throughout the forecast period. The country’s GDP per capita (PPP) was estimated at USD 62,573 in 2024 by the IMF, but the relatively solid macroeconomic performance of the United Kingdom conceals weaknesses and situations of inequality. Thus, as the IMF has emphasised, strengthening human capital remains a key priority for the country's economy.

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