Why the global economy is set to normalise in 2024 

But we think that in 2024 the global economy will finally start to normalise again.

By normal we mean that inflation and interest rates will return to levels we’re more familiar with from the past, after policymakers took action to tackle spiralling prices and higher wages.  

The Bank of England, along with other central banks, responded by sharply increasing interest rates. Inflation fell from a high of over 11%, as a result, and while it is still running above the Bank of England’s target rate, we expect it to fall to near that 2% figure within the next 12 months. The Bank is likely to cut interest rates as it gets more evidence that its strategy is curbing rising prices, but we won’t return to the near-zero levels that were a feature of the 2010s. 

An important part of the brighter economic outlook is an improving labour market. High job vacancies fuelled wage growth, which in turn stoked demand. The number of unfilled jobs is falling, although the figure remains higher than before the pandemic, but we think the picture will further improve this year.

A general election is due in 2024, and one of the biggest challenges facing the next government is how to reverse the long-term underinvestment in the UK economy. Productivity growth in the US and across much of continental Europe has been higher than in the UK over the past 20 years, and without a big injection of either public or private investment in capital and skills then the country risks falling further behind other major economies in the next five years. 

The equation is simple: unless the country’s workforce produces more, the economy won’t grow at the faster pace needed to push up living standards and strengthen the government’s finances.

New technology could help solve the UK’s productivity problem. The country is well placed to become a global leader in renewable energy, although it needs to address problems in its ageing energy grid. 

AI could also transform the UK economy. The new tech will create two kinds of winners. The first are the enablers. They are the tech companies developing the AI tools. US firms have been the leaders so far, but with the technology still in its infancy, there’s still plenty of time for UK companies to help shape AI’s future. 

The second group of winners will be the adopters: those that are the first to use AI to become more efficient. The technology is likely to have a bigger impact on mature economies like the UK’s than on up-and-coming ones, as automating a job that pays US$100 an hour will create more value than one that pays US$10 an hour. 

It wouldn’t just benefit companies. The government could use AI too to save money in areas such as healthcare – the UK’s biggest public expenditure – where there are exciting AI breakthroughs which could create better outcomes for patients at a much lower cost.

AI is evolving so quickly that it's impossible to predict how it will change the way we live and work. But one thing’s certain: the UK could reap the productivity benefits if it were to embrace the AI revolution.

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