Our economic outlook for the United Kingdom

U.K. growth over the last year has been healthy and close to its potential. Looking through the tariff and national insurance tax-hike frontrunning in the first quarter, growth in the first half of 2025 was quite balanced, with consumer spending, government spending, and business investment all making meaningful contributions.

We are constructive on the outlook for the second half of the year. Solid investment in a highly uncertain trade environment in the first half was an encouraging signal for the second half. The government’s commitment to raise day-to-day spending will continue to be a positive impulse. We expect 2025 growth of 1.3%.

But growth in 2026 will be more muted. This is primarily because the chancellor of the exchequer will be forced to raise taxes in the autumn budget. We estimate the chancellor will need £20 billion to £30 billion of savings to meet fiscal rules to which she’s committed. We forecast growth of just 0.8% in 2026.

We no longer expect the Bank of England (BoE) to ease monetary policy again this year. Recent payroll data suggest the labor market is softening rather than collapsing. Broader economic activity shows no signs of material weakness yet. We push our expectation for the next BoE cut into 2026 and expect the bank rate to end 2026 at 3.25%.