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FT Economist Survey 2024 – My answers

Jan 2, 2024

Below are my answers to this year’s FT Economics Survey, which polls around 100 of the UK’s leading economists. My answers, alongside the other economists, can also be read on the FT’s website.

In short, growth will be low but in line – or outpace – other major Western European economies. Living standards will improve as wage growth should exceed inflation and the labour market should remain strong, although the unemployment rate may rise slightly. The Bank of England should avoid a pyrrhic victory over inflation with excessively tightening. And implementing credible and ambitious planning reform to build more homes and business sites would significantly help the UK’s growth prospects.

Question 1: Will voters feel better or worse about their living standards in the run-up to the election?

Better as living standards should improve over the coming year, but this will not compensate for the hit that has been seen since the 2008 financial crisis. Since then the UK has become a low growth, low productivity and low wage economy. But, in 2024, wage growth should exceed inflation and allow living standards to improve. Voters will also be factored by other factors, and thus the picture will vary. The labour market should remain strong, even though unemployment rate may rise slightly during the year. Lower interest rates may ease some stress in the housing market, but not remove it fully for those who are remortgaging. Renters will continue to be squeezed by high rents eating into their disposal income. Even though there may be income tax cuts in the Spring, this will not compensate fully for the non-indexation of the tax system and personal allowances not rising in line with inflation.

Question 2: Will the Bank of England win its fight against inflation in 2024?

Given it notably lose the battle by letting inflation soar and misdiagnosing it as ‘transitory,’ it is hard to claim the Bank will win the fight when inflation is set to decelerate. Nonetheless, the Bank should avoid a pyrrhic victory over inflation with excessive monetary tightening, which will hit the economy hard. Having been too lose for too long, policy is now too tight. To put this in context, the current price level (data for October 2022) is 22 per cent above its level of only January 2020. Thus, the price level is far in excess of where it should be if monetary policy had been well executed, as opposed to poorly. While inflation could touch the 2 per cent target during the course of the year, it still looks set to settle above the inflation target — at around 3 per cent — in 2025. This may allow the Bank to ease rates in 2024, but may limit its ability to cut rates aggressively.

Question 3: Will the UK economy escape stagnation in 2024 — and if so, will it outpace or lag other advanced economies?

No. Growth will be low, even though inflation will decelerate. It will be in line with, or outpace the other major Western European economies, but it will lag the US. 

Question 4: Which single policy change after the next election would do most to boost the UK’s long-term growth?

Implementing credible and ambitious planning reforms to build more homes and business sites. Institutional change could also be explored, such as splitting HMT into growth and finance departments.