November has been a month of digesting major changes, as business and governments weigh the effects of both the Autumn Budget and the outcome of the US presidential election.

This Insight looks at recent economic data and forecasts to see how these events will affect the economy in the months ahead.

Some inflation measures remain high, and growth is low

Inflation in October 2024 was 2.3% as measured by the Consumer Prices Index (CPI), up from 1.7% in September. Although this is close to the Bank of England’s target of 2%, not all inflation measures are as low as this.

As the chart on the left below shows, “core” inflation (excluding energy and food, which tend to change more rapidly) and inflation in services have fallen more slowly than the overall CPI measure.

Two charts: one shows CPI inflation, core inflation and services inflation from 2020 to late 2024. All three measures were around the same level in mid-2021. CPI peaked in late 2022 but has since returned to around the 2% target level. Core and services inflation rose more slowly and to a lower peak, but as of autumn 2024 have not yet come back down as far. The second chart shows that GDP per person grew steadily between 2010 and 2019, then fell sharply in the covid-19 pandemic. Despite recovering by mid-2021, it has since been flat or slightly decreasing.
Source: ONS, time series D7G7, DKO8 and D7NN, and GDP first quarterly estimate, UK: July to September 2024

The economy grew by 0.1% in the third quarter of 2024 compared with the previous quarter, according to the Office for National Statistics’ (ONS) first estimate. There has been little consistent growth in GDP since the end of the covid-19 pandemic. As the chart on the right above shows, real GDP per person is currently below its pre-pandemic levels.

Bank of England assesses the effect of the Budget

The Bank of England’s Monetary Policy Committee (MPC) voted on 7 November 2024 to cut the Bank’s main interest rate to 4.75%. It felt able to do so because inflation remains close to the Bank’s target of 2%. However, as the chart on the left below shows, the Bank’s analysis suggests that the Autumn Budget has added about 0.2 to 0.4 percentage points to inflation up to the end of 2027. The forecast still shows inflation below the 2% target at that point.

Two charts showing forecasts from the Bank of England. The first shows that the Bank forecasts a slight growth in CPI inflation until Q3 2025, after which it will head back down towards the 2% target. The forecast is slightly higher as a result of measures in the 2024 Autumn Budget. The second chart shows the Bank’s GDP growth forecasts, made in August and November 2024. Both show growth of between 1% and 2% in most quarters, but the November forecast is higher in 2025 and lower in 2027 than the August forecast.
Note: GDP growth projections assume that the Bank rate moves in line with market expectations.
Source: Bank of England, Monetary Policy Report for August 2024 and November 2024

As the chart on the right shows, the Bank has also revised its GDP growth projections since its last forecast in August 2024. It now thinks that the economy will grow faster than its earlier forecast for much of 2025 and 2026, but slower after that.

Sales volumes fell in October after three months of growth, with particularly large decreases in non-food stores. According to the ONS, retailers suggested that low consumer confidence and uncertainty about possible tax rises in the Budget affected sales.

Labour market may be healthier than the numbers suggest

The ONS’s official figures show that the unemployment rate has varied considerably over the past year, between 3.8% and 4.4%. The figures also show a large increase in economic inactivity following the pandemic. However, both of these conclusions should be treated with some scepticism.

As the Library explains in section 5 of our research briefing UK Labour Market Statistics, response rates to the Labour Force Survey underpinning the statistics have fallen since the pandemic, and this has made the data much less reliable. Both the Bank of England and the Resolution Foundation think tank have compared the ONS’s figures with other data sources, and both conclude that the reality may be somewhat different: the Bank of England has said the unemployment rate may have been stable throughout 2023 and 2024, while the Resolution Foundation suspects that economic inactivity is lower than the official figures suggest.

Effect of any Trump tariffs is currently unclear

Finally, it remains to be seen whether Donald Trump’s second term as US President will have a significant economic effect on the UK.

During his election campaign, Mr Trump promised to impose sweeping tariffs on trade, but it is not obvious how severely UK trade would be affected if these were implemented. As the chart below shows, the United States is the UK’s single largest individual export destination, accounting for around 16% of UK goods exports. Neither the amount nor the overall proportion of UK exports to the United States changed significantly during the previous Trump administration.

A chart showing the total quarterly value of the UK’s goods exports between 2008 and 2024. Trade has increased over this period, but the total value of exports has also become more volatile. The EU accounts for more of the UK’s exports than anywhere else, but the US is the largest individual destination, accounting for between 12% and 17% of goods exports over this period. The first Trump administration was not noticeably different from other time periods by this measure.
Source: ONS, Trade in goods: country by commodity dataset, 16 August 2024

UK exports are more dependent on services than on goods: services made up 57% of all exports in July to September 2024. This means that any effects on the international economy more generally may also feed through to the UK.

About the author: Philip Brien Senior researcher at the House of Commons Library, specialising in public spending.

Photo by Benjamin Elliott via Unsplash