Economy ‘turning a corner’ in boost for Sunak

BRITAIN’S economy is “turning a corner” as high inflation is expected to subside this year, paving the way for interest rate cuts this summer, according to ratings agency S&P Global.

Consumers’ purchasing power is gradually improving amid a resilient jobs market, S&P said, in a boost for the Prime Minister Rishi Sunak’s attempt to revitalise the economy.

The ratings giant said growth will “improve more markedly” in 2025 as household spending is boosted further by falling inflation. It predicted that the economy would expand by 0.3pc this year before rising by 1.4pc in 2025.

Further increases of 1.7pc are then expected in both 2026 and 2027.

By contrast, the Bank of England forecast in February that Britain’s GDP would rise by 0.25pc in 2024 and by 0.75pc next year. A 1pc increase is then expected in 2026.

In its latest economic outlook, S&P said: “Monetary policy will likely start easing in August as inflation cools, with rate cuts this year and next spurring investment and potentially adding about 2 percentage points to economic activity, albeit most of the impact will come in 2026 and 2027.”

S&P said workers are “likely to retain sufficient bargaining power by the end of this year”, which would help them secure annual pay rises of between 4pc and 5pc in 2025.

However, it warned that disruption to global shipping in the Red Sea would help to keep inflation above the Bank of England’s target of 2pc.

It said prices would rise by 3pc this year and 2.3pc in 2025, before returning to the 2pc target the following year.

The prospect of persistent inflation comes as a senior Bank of England official warned that bets on interest rate cuts this summer are too optimistic.

Catherine Mann, who voted to hold borrowing costs at 5.25pc last week, said investors had become “complacent” about the prospect of falling rates.