Lower borrowing costs will boost the economy and inject more life into the housing market. It means the period of stagnation that followed the pandemic and the cost of living crisis should soon be at an end, said Martin Beck, chief economic adviser to the Item Club.
Economic recovery this year will be driven by “real wage growth, interest rates coming down, the boost that will deliver to confidence and sentiment, energy bills dropping 15pc in April, and tax cuts – the ones we have already had and probably more at the Budget in March,” he said.
Consumer spending should rise 0.9pc across the year, more than the 0.7pc previously predicted.
The end of the energy price shock will be particularly significant.
Mr Beck said: “The fall in energy bills in April is looking even bigger than people thought – wholesale gas prices are really dropping, they are lower than they were just before Ukraine got invaded. That will filter through the wider economy.”
However, the outlook for companies remains weak, with business investment set to drop 1pc this year before recovering in 2025.
EY Item Club’s forecast chimes with a survey from the Federation of Small Businesses (FSB), which shows companies’ confidence fell back in the final months of 2023.
The majority of small businesses reported a fall in revenues, while the share reporting a fall in export volumes outweighed the proportion whose overseas business grew.
Tina McKenzie at the FSB said things are particularly tough in hospitality and retail.
She said: “It’s especially disheartening that this slip in confidence happened in the so-called ‘golden quarter’, which so many hospitality and retail firms in particular rely on to shore up their finances ahead of the new year’s belt-tightening.
“With small hospitality firms reporting a big fall in their confidence, there are fears of yet more distress and closures among this sector, so vital to community spirit and our social fabric. The help extended to small firms in the retail, leisure and hospitality sectors at the Autumn Statement via an extension of business rates relief is a welcome start, and will mitigate their tax burden later this year, but right now things are tough.”
