Our main forecast a year ago was that the UK would suffer a recession. Although the latest data released just before Christmas suggests that a technical recession may well be taking place in Q3 and Q4 this year, the reality is that the economy has flatlined rather than fallen back. We would treat this prediction as one we got wrong (though to be fair, we had got our UK GDP forecasts for the previous two years much more right than anyone else).
In fact the most interesting item of economic data has been a massive 2% revision to the historic GDP data. As Lord Lilley once pointed out, in the UK the past is often nearly as uncertain as the future.
Some of our other forecasts were closer to being right. We warned of falling house prices – they started to fall during the year – and of sharp falls in commercial property prices (which also has happened) though the latest evidence seems to suggest that they bottomed out in Q3; a rowing back on some green measures as the costs became more obvious – yet again this has happened; inflation falling quickly (which also has happened but later than we expected); a rise in Covid as China opened up (this happened in a very dilute way); and a weak equity market (both the Dow and the FTSE have spent most of the year flatlining but the improvement in inflation sentiment in December prompted a year-end rally).
The infamous sporting predictions were a mixed bag – Red Bull and Verstappen won by a street as we predicted; but Arsenal didn’t win the league (at least this year); our worst sporting prediction was that England’s cricketers might hang on to their white ball world cup – they nearly came last!
So what about 2024?
First, overseas politics. There is a lot that has a good chance of going wrong this year. Chronologically, the Taiwanese election on 13th January provides the first banana skin. The DPP who are generally thought not to be pro-Beijing are just in the lead, though the Kuomintang (Chiang Kai-Shek’s old party) who are much more acceptable to Beijing seem to be catching up. China wishes to reunify the country; a DPP victory might trigger aggressive action to make this happen though we still think this will fall short of a military invasion.
Russia seems to have seen off Ukraine’s spring and summer offensive this year and in a war of attrition clearly has a numerical advantage. The US, though not Europe, seems to be tiring of supporting Ukraine. If this leads to a Russian victory, much of Scandinavia and Eastern Europe will feel at risk. If Donald Trump, with his fondness for Putin, also wins the November presidential election in the US, Europe will definitely be under Russian threat.
Elections in Indonesia and India could also affect major economies, while the European Parliament goes to the vote between June 6th and 9th. The anti-immigrant and Eurosceptic Identity and Democracy Group is tipped to win more than a tenth of the seats. The result of the election is likely to be a ‘conservative’ (European People’s Party) and ‘socialist’ coalition as at present.
Second, UK politics. There is an election that has to be held by January 2025. The Prime Minister has confirmed that it will be this year and in practice this means before Christmas. Most people believe that Labour will win. More interesting is what sort of Labour Party will turn up in government. While it is clear that Labour is no longer Corbynite (indeed Jeremy Corbyn may run against his old party) whether the party can manage to restrain its age-old habit of overspending will be critical, especially as taxes and spending start from an already elevated level. If Labour can restrain its spending, the party could be in power for more than one term.
Third, world economics. The normal rules of economics resumed in 2023 as inflation fell back, eventually quite rapidly, in response to monetary tightening and sharp rises in interest rates. But this happened without a major rise in unemployment in most countries, though other labour market indicators definitely weakened. The hangover effects of monetary deceleration (negative in the US for most of 2023) and high interest rates are likely to mean sluggish world growth during 2024.
But fiscal policy, especially in the US (which in reality is the country that matters most), has been running on fast forward for many years and the US is definitely testing the limits of how much debt the markets will accept. At some point the markets could pull the plug on the US Federal Government. But if so, where would they go? Again, one wonders whether a political event (like Trump being elected) could trigger a Federal default.
No entity of the scale of the US Federal Government has ever defaulted in the entire history of the world. And if it did so, one assumes the consequences would be severe and long reaching and would make small percentage changes in GDP look trivial, though this conclusion is based on assumption as there is no past evidence.
Fourth, UK economics. The conventional wisdom is that after a sticky period in the New Year growth will resume at its (rather slow) trend rate by mid-year at the latest. But political uncertainty and the potential international debt issues mean that there is a risk of an economic earthquake undermining this growth.
Fifth, inflation and interest rates. Although inflation has not gone away, it has fallen very rapidly. Core inflation remains stubbornly high, however, at 5.1% in the UK and just over 4% in the US. Market interest rates are already falling and it is likely that rates on both sides of the Atlantic will fall gently during 2024, though a return to near zero rates is a long way off.
Sixth, financial markets. The outlook for bond and equity markets is the best for many years, though some of 2024’s gains have already been taken (in thin markets) during the last weeks of December 2023. Falling interest rates and steady growth are normally a great background for financial markets. But the caveat about the dangers of excess debt remains.
Seventh, property. Falling interest rates and steady growth are also good for property, though the overhang of unsold property probably means that the indices will lag the reality (we also think that most prices have fallen by rather more during 2023 than the indices suggest). One problem in the UK is that the tightening up of fire safety procedures in the aftermath of the Grenfell Tower disaster has left many flats largely unsaleable until new fire safety procedures can be adopted and the shortage of trained staff for fire assessment has meant the backlog will last for years.
Eighth, technology. AI seems likely to continue to be the technological star, though real-life applications are still emerging surprisingly slowly. Green applications are also still developing rapidly though few yet look like game changers. Progress here might well take the form of assessments of green progress based on more realism and less optimism.
Nineth, climate. Most evidence points to 2023 as the hottest year in recent times as a result of the combination of climate changes and El Nino influences. The El Nino effects seem likely to last well into 2024, which traditionally creates good skiing weather. They could well last long enough into the year to make the summer even hotter than in 2023.
Tenth, our infamous sporting predictions. It’s a bumper year for sports. England are for once favourites for a soccer tournament, the 2024 Euros in Germany, with the two star players very familiar with playing in Germany. The Paris Olympics will contain four new ‘sports’ – break dancing, surfing, skateboarding and sport climbing, though unless the organisers have learned from the shambolic Rugby World Cup, it might be best to watch the events on TV. There is yet another Cricket World Cup, 20-20 this time, with the competition entering the US as well as the Caribbean for the first time. India look favourites to beat Australia in the final. The big news in golf is likely to be the battle between the Saudi tour and the rest – we expect a deal to emerge. In rugby, the biggest issues are likely to be off the field as the sport gets to grips with its long-term brain damage issues.
We do not pretend to be confident about 2024. So we wish all our friends the best of luck in navigating through what could be an uncomfortable year.
For more information, please contact:
Douglas McWilliams, Deputy Chairman
Email: dmcwilliams@cebr.com, Phone: 07710 083652
Cebr is an independent London-based economic consultancy specialising in economic impact assessment, macroeconomic forecasting and thought leadership. For more information on this report, or if you are interested in commissioning research with Cebr, please contact us using our enquiries page.