In this Hardman Talks, Keith Hiscock talks about the economic and political effects of the October 2024 UK budget, referring to his recently published Insight, “We got it wrong“. He also makes predictions for 2025, sharing insights into what lies ahead for the economy, interest rates, inflation, and political stability.
Keith predicts that 2025 will see higher inflation, largely due to increased employment costs stemming from the government’s rise in National Insurance contributions. Businesses are expected to respond by reducing recruitment, implementing redundancies, and raising prices. Additionally, interest rates may remain higher than anticipated as market concerns grow over government borrowing.
Another key concern is the risk of a recession. While the UK economy has seen marginal growth and decline in recent quarters, he warns of a strong possibility of two consecutive quarters of negative GDP growth in 2025, meeting the technical definition of a recession.
A pivotal moment for the economy is expected on 26 March 2025, when the Office for Budget Responsibility (OBR) releases its fiscal report. Keith anticipates that the government will face tight constraints, leaving little room for manoeuvring within its fiscal plan. This could lead to a combination of tax increases and spending cuts, a move that would be politically challenging.
In an effort to maintain its commitment to economic growth, the government has announced large-scale infrastructure projects such as the expansion of Heathrow Airport and the Oxford-Cambridge development. However, these initiatives will have little immediate impact on GDP in 2025 or even 2026.
The political landscape may see significant upheaval in 2025, with the Chancellor’s position under scrutiny. If tax hikes and spending cuts are introduced, public dissatisfaction could grow, potentially leading to calls for new leadership. Keith suggests even Prime Minister Keir Starmer’s role could come under question as Labour MPs grapple with governing under difficult economic conditions. The uncertainty surrounding potential political changes could have a destabilising effect on financial markets, adding to overall economic volatility in the UK.
With a challenging economic climate, potential recession, and political instability on the horizon, 2025 is shaping up to be a turbulent year for the UK. Investors and businesses will need to closely monitor government policy decisions and market responses in the coming months.
This is the second of two interviews about the article, “The October 2024 Budget: We got it wrong”. The first video reflects on the content of the Budget, and how it differed from expectations.
Watch the interview now to find out more.
