How Does Population Growth Affect the UK Economy?

The UK economy is currently grappling with significant challenges, including a contraction of 0.1% in October 2024, marking the second consecutive month of decline. This downturn has been compounded by a drop in the British pound, which fell by 0.3% against the US dollar, now trading at $1.2627. Economists had anticipated a growth of 0.1%, making this contraction particularly concerning [167796a1].

In the context of these economic challenges, the UK population has seen substantial growth, increasing by 906,000 in the year ending June 2023, followed by an additional 728,000 in the subsequent year. This surge has raised questions about its impact on economic performance, particularly as GDP per head was estimated at £9,252 in Q3 2024, down 0.1% from the previous quarter. Notably, the UK's GDP per capita has fallen by 0.7% since Q4 2019, contrasting with Italy's growth of 5.9% during the same period [3270b6cc].

In the US, the economic landscape is similarly troubling, with a reported budget deficit of $367 billion for November 2024, a 17% increase from the previous year. Significant adjustments for benefit payments added $80 billion to expenses, leading to a cumulative deficit of $624 billion for the first two months of the fiscal year [33530c23].

UK Finance Minister Rachel Reeves has defended the government's economic strategies, which include proposed tax increases totaling £40 billion ($50.5 billion). These measures have sparked concerns about their potential impact on households already grappling with surging grocery prices. Reeves has also pointed fingers at the Tory predecessors for the current economic stagnation, indicating a lack of confidence in the previous administration's policies [167796a1].

The Office for National Statistics (ONS) attributed the recent economic downturn in the UK to weak performances in sectors such as pubs, restaurants, and overall services. This has led to a decline in consumer confidence, prompting more cautious spending as the festive season approaches [9d4f910a].

In light of the economic challenges, the Bank of England has revised its 2024 growth forecast down to 1% from 1.25%, while predicting a growth of 1.5% for 2025. The central bank has maintained its interest rate at 4.75%, with inflation nudging toward 3%. However, potential rate cuts have been delayed until February 2025, as the central bank assesses the broader economic landscape [08080bf4].

Alice Haine from Bestinvest has warned that businesses may face potential job cuts and reduced pay, particularly as they grapple with rising costs from National Insurance and minimum wage increases set to take effect in April 2025 [9d4f910a]. The Confederation of British Industry (CBI) has also revised its GDP growth predictions for 2024 down to 0.9%, reflecting a broader trend of economic pessimism [e6cff99f].

As the UK navigates these economic challenges, the interplay between growth forecasts, corporate mergers, and consumer sentiment will be critical in shaping the future landscape of the economy. The recent approval of the £15 billion merger between Vodafone and Three is expected to reshape the telecommunications sector, enhancing competition and service delivery [3ffde8e9]. Meanwhile, Volkswagen has announced pricing for its new Transporter model, starting at £30,995, with availability set for January 2025 [3ffde8e9].

In Minnesota, the budget forecast predicts a $2.2 billion structural imbalance starting in FY 2026-2027, with a potential widening deficit of $5.8 billion by FY 2028-2029, indicating that the economic challenges are not confined to the UK and US alone [33530c23].

With cautious optimism for a potential recovery in 2025, Prime Minister Keir Starmer aims for the fastest GDP per capita growth in the G7, making the economic policies implemented now crucial for future stability. However, the Labour party's messaging has been perceived as downbeat, potentially dampening public confidence in their ability to deliver on growth promises [167796a1].