With almost half of 2024 behind us and the UK and US General Elections on the horizon, we share the latest views on the global economy, including the outlook for growth, inflation, jobs, and interest rates.
Key points
- Underlying US economic growth was stronger than the headline reading, with private domestic demand still resilient.
The euro area economy grew in the first quarter of 2024, signalling an end to the recession. - A strengthening of the UK economy has led us to raise our full-year growth expectations for the country.
- Mixed signals in China suggest the economic rebound observed in the first quarter of 2024 may be fragile.
Continued economic resilience in the US, stronger momentum in the euro area and a rebound in the UK raise questions about the path to rate cuts.
UK
Recent economic indicators show a strengthening UK economy and a firming of inflation, leading Vanguard to increase its outlook for 2024 growth from 0.3% to 0.7%. We have also raised our outlook for year-end core inflation from 2.6% to 2.8%.
We continue to believe that the Bank of England (BOE) will cut interest rates at its August meeting, but, amid the outlook for higher interest rates globally, we have scaled back our expectations for the depth of cuts this year. We expect two quarter-point cuts this year, bringing the bank rate to 4.75% by year-end, and a further four quarter-point cuts to 3.75% by the end of 2025.
The Office for National Statistics (ONS) confirmed that the UK economy has rebounded from a brief recession, with GDP growing by 0.6% in the first quarter of 2024 after contracting in the latter half of 2023.
Headline inflation was 3.2% in the 12 months to March, a slight decrease from 3.4% in February, according to the ONS. Core inflation, which excludes volatile items such as food, energy, alcohol and tobacco, increased by 4.2% in the 12 months to March, down from 4.5% in February.
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