The EY ITEM Club’s recent analysis indicates a modest growth in GDP for the current quarter (Q4), signalling some economic momentum. However, the overarching scenario remains one of near-stagnation, a trend likely to continue into early 2024.

Martin Beck, chief economic advisor to the EY ITEM Club, said: “GDP growth in September came in at 0.2% month-on-month, a little stronger than the consensus forecast of zero.

“This was the second successive monthly increase, but a 0.1ppt downward revision to growth in August (to 0.1% month-on-month) and a weak start to Q3 meant the economy flatlined in the three months to September, down from growth of 0.2% in Q2.”

Martin Beck

He noted that consumer spending, government consumption, and business investment declined, with their impact offset by positive contributions from net trade.

Consumer spending faces challenges from higher mortgage payments, fiscal drag, and a dampened sentiment. The upward trend in interest rates is also expected to restrain investment activities. Despite these pressures, the economy is anticipated to avoid a severe downturn, buoyed by improvements in real wages as inflation rates fall and pay growth remains consistent.

Mr Beck highlighted: “The impact of higher mortgage payments is growing as more homeowners come to the end of previous fixed-rate deals. A combination of still-high inflation and frozen tax allowances mean fiscal drag is also eroding consumer spending power.

“The jobs market appears to be weakening, although data issues cloud the picture. And higher corporate financing costs and economic uncertainty are likely inhibiting investment.”

In conclusion, he continued: “That said, the economy’s positives should prevent a serious downturn in the short-term and prompt a pick-up in growth from the second half of 2024.

The recent return to growth in real wages should build as inflation slows faster than sticky pay growth. Higher interest rates are delivering an income boost to savers. And a wide range of indicators suggest that the labour market is loosening only slowly.”