Our economic outlook for the United Kingdom
December 04, 2025
All eyes on the autumn budget and its policy implications
“We expect a fiscal consolidation of at least £30 billion to be announced in the autumn budget. This will shave 0.2 percentage points off growth and strengthens the case for additional monetary easing.”
Shaan Raithatha,
Vanguard Senior Economist
The U.K. economy has grown close to its potential over the past year, with economic activity balanced across consumer spending, government spending, and business investment. The resilience of activity is encouraging, given the uncertain global trade environment and weakening labor market.
The November budget is modestly positive for growth in 2026 as day-to-day government spending will increase, while most of the £26 billion worth of tax increases will come into effect only from 2028 onward. We forecast U.K. GDP growth of 1% in 2026.
An improving inflation outlook, coupled with a stable economy, should allow the Bank of England to feel comfortable enough to continue easing monetary policy in 2026. We forecast that the bank rate will be lowered to 3.25% by the end of 2026.
United Kingdom economic forecasts
Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December for each year. Core inflation is the year-over-year change in the Consumer Prices Index, excluding volatile food, energy, alcohol, and tobacco prices, as of December for each year. Monetary policy is the Bank of England’s bank rate at year-end.
Source: Vanguard.
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