Yael Selfin, the Chief Economist at KPMG UK, believes that while the economy has likely exited the recession, its future prospects remain subdued.
According to Selfin, this lacklustre economic situation will enable the Bank of England to initiate reductions in interest rates starting this summer. He notes:
The year began with an uptick in economic activity, marking a fairly widespread recovery across various sectors.
Current indicators suggest a continued strengthening in February, enhancing the view that the UK’s recent recession was both brief and mild.
However, despite some improvements, the economic forecast remains somewhat bleak.
Growth is not anticipated to significantly accelerate this year, hindered by the ongoing effects of high-interest rates on demand. Additionally, the supply side faces challenges, with a sluggish outlook for business investment and diminished public sector investment, likely to further limit productivity and long-term growth.
Given this weak economic backdrop, combined with a more positive inflation forecast, Selfin expects the Bank of England to be able to start reducing interest rates from the summer, even in the wake of the recent tax cuts announced in the Budget.
However, he predicts that the overall policy approach will remain tight, with interest rates likely staying above the neutral rate until the summer of 2025.
