UK gross domestic product (GDP) growth for 2025 is expected to shift slightly higher to 1.4 per cent, up from 1.3 per cent previously, largely driven by public spending, according to the British Chambers of Commerce (BCC). However, GDP growth expectations for 2026 and 2027 remain unchanged at 1.2 per cent and 1.5 per cent respectively, reflecting persistent productivity challenges and cautious fiscal tightening.

The last month’s budget is unlikely to kickstart economic growth, with the first major post-budget forecast from a leading business body pointing to a subdued outlook. The growth prospects remain modest despite a marginal upward revision for 2025, BCC said in its latest economic forecast.

UK GDP growth for 2025 is forecast to edge up to 1.4 per cent, driven by public spending, according to the British Chambers of Commerce.
Last month’s Budget is unlikely to revive the economy.
Growth in 2026 and 2027 remains subdued, with weak business investment, slowing exports, and rising unemployment.
Inflation is easing, but only modest interest rate cuts are expected.

In 2026, manufacturing growth is forecast at 0.9 per cent, and by 2027, growth is projected to improve to 1.8 per cent in manufacturing.

Business investment is expected to weaken sharply next year. After an estimated rise of 3 per cent in 2025, investment growth is forecast to slow to just 0.9 per cent in 2026, before recovering modestly to 1.5 per cent in 2027. The BCC attributed the weakness to sustained cost pressures on firms and the absence of direct growth-boosting measures in the budget.

Exports are forecast to rise by 1.8 per cent in 2026 and 2.4 per cent in 2027, sharply lower than earlier expectations of 3.3 per cent and 3.2 per cent. Imports are projected to grow by 3.8 per cent this year, before easing to 1.4 per cent in 2026 and then rising to 2.8 per cent in 2027.

Inflation is forecast to continue easing, with consumer price inflation expected to fall to 2.1 per cent by the end of 2026 and reach the Bank of England’s 2 per cent target by the fourth quarter of 2027. Average earnings growth is also expected to cool, from 4.3 per cent by the end of this year to 3.8 per cent in 2026 and 3.5 per cent in 2027.

With inflation easing but growth remaining weak, interest rate cuts are expected to be limited. The BCC forecast sees the policy rate at 3.75 per cent by the end of this year, falling only slightly to 3.5 per cent by December 2026.

Unemployment is projected to rise further, reaching 5.1 per cent in 2026 as labour market conditions loosen and firms rein in hiring amid cost pressures and sluggish productivity. The rate is then expected to ease to 4.8 per cent in 2027.

“Our forecast suggests last month’s Budget is unlikely to be a growth game-changer for the UK economy,” said David Bharier, head of research at the BCC. “The outlook for SMEs in 2026 will continue to be challenging with business investment and export growth struggling. Inflationary pressures, specifically from rising labour and energy costs, are likely to persist, meaning only modest cuts in the interest rate. Unemployment will be a key indicator to track as labour costs rise and automation costs ease.”

“Taken together the forecast paints a picture of an economy remaining stuck in low gear. Businesses are showing remarkable resilience and innovation, but many are weighed down by political uncertainty and the cumulative cost pressures,” added Bharier. “Delivery on growth is now key—the government has published industrial, trade, and infrastructure strategies, and these must translate into action. The UK is trapped in a low growth cycle, with consequences for both the fiscal and political landscape. Maximising the AI roll-out and global trading opportunities could help break the deadlock.”

“Businesses will be steering through choppy waters once again next year after a Budget that lacked the growth measures so desperately needed,” said Vicky Pryce, chair of the BCC economic advisory council. “Getting inflation back down towards the Bank’s 2 per cent target is good news, but that masks the continuing cost pressures for businesses. Significant interest rate cuts, that would make a huge difference to businesses and households, are not guaranteed next year by any means.

“Rising unemployment will be a key part of the economic landscape next year, pushing down consumer spending and presenting further challenges for firms of all sizes,” added Pryce.

Fibre2Fashion News Desk (SG)