United Kingdom

This report does not constitute a rating action. Overview Institutional and economic profile Flexibility and performance profile The U.K. is the world's sixth-largest economy, characterized by high GDP per capita and developed product and labor markets. Highly credible and effective monetary policy, but fiscal headroom has been shrinking. -- After falling into recession last year, the U.K. economy is set to recover modestly during 2024 and into 2025. -- The Bank of England's monetary policy is characterized by a wide array of available and effective instruments, both conventional and unconventional, and we view the British pound sterling as a reserve currency. -- The U.K.'s developed and diversified economy benefits from the strength and independence of its key institutions. -- In

...The U.K. fell into a technical recession in the second half of 2023 but we expect growth to strengthen gradually in 2024 and to accelerate in 2025. Lower headline inflation and an easing of monetary policy later in 2024 should underpin real growth of 0.3% in 2024, followed by an acceleration to 1.4% in 2025. We expect inflation to moderate to 3% on average in 2024, down from 7.2% in 2023. This should allow the Bank of England (BoE) to start easing its policy--we expect to see three rate cuts in the second half of 2024, bringing the policy rate to 4.5% from 5.25%. We project the general government deficit will moderate to 4.5% of GDP in 2024 from 6% of GDP in 2023, aided by lower interest expenditure and broader spending restraint. We see a number of downside risks to the U.K.'s fiscal performance, including pressure to raise public spending. We forecast that the U.K.'s net general government debt will peak at 99.4% of GDP in 2025 and reduce slowly thereafter....

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