UK economy to grow 1.3% in 2025, trade deficit persists: BCC

The UK economy is forecast to expand by 1.3 per cent in 2025, up from the earlier 1.1 per cent estimate, supported by stronger Q1 performance and public spending. Growth is projected at 1.2 per cent in 2026 before rising to 1.5 per cent in 2027.

Business investment remains weak at 1.6 per cent this year, sharply down from the previous 4.8 per cent forecast, reflecting subdued SME sentiment and higher national insurance costs. A modest recovery is projected—1.9 per cent in 2026 and 3 per cent in 2027, British Chambers of Commerce (BCC) said in a release.

Exports are forecast to grow 3.1 per cent in 2025, aided by early momentum before new US tariffs, but net trade will stay negative as imports climb 4.4 per cent. Net trade is expected to contract by -1.3 per cent this year, -0.7 per cent in 2026, and -0.9 per cent in 2027.

“While 2025 may be slightly better than forecast, the overall growth landscape for the UK in the next couple of years looks weak. The economy will continue to be buffeted by global headwinds, alongside ongoing worries about high bond yields. Government expenditure has bolstered the economy this year, but the spending taps are likely to be tightened very soon across Whitehall,” said Vicky Pryce, chair of the BCC Economic Advisory Council, commenting on the forecast.

Inflation is expected to remain stubbornly above the Bank of England’s target, with CPI revised up to 3.7 per cent for 2025, before easing to 2.5 per cent in 2026 and 2.1 per cent in 2027. Higher wages and national insurance hikes continue to drive price pressures.

Interest rates are unlikely to fall further this year, with the base rate projected to hold at 4 per cent by end-2025. Limited cuts are expected in 2026, lowering the rate to 3.5 per cent, where it is set to remain through 2027.

Earnings growth will outpace inflation, rising 4.3 per cent in 2025, then 4.1 per cent in 2026 and 4 per cent in 2027, though this adds inflationary pressures. Unemployment is forecast to stay stable at 4.7 per cent through 2026, easing slightly to 4.5 per cent in 2027.

“A net trade deficit will continue to weigh on growth going forward. Global trade tensions, ongoing conflicts, and the recent removal of the USA’s de minimis threshold for small exporters are acting as a drag anchor on exports,” David Bharier, head of research at the British Chambers of Commerce said.

“The forthcoming Autumn Budget will be a pivotal moment. The Chancellor faces some tough decisions as more tax rises risk severely undermining sentiment and investment even further. Sustainable growth depends on driving productivity through modern infrastructure, a skilled workforce, and seizing the opportunities of the AI revolution. SMEs need the tools to invest, trade and expand. Without this, the UK risks being locked into a prolonged low-growth trap,” Bharier suggested.

“The spectre of inflation is set to loom over the economy for some time to come, with consumers reluctant to spend. That’s likely to slow the path of interest rate cuts. Government long-term strategies are welcome – but firms can’t only exist on promises of tomorrow. They need help today to grow, recruit and compete,” Pryce added. 

The UK economy is forecast to grow 1.3 per cent in 2025, easing to 1.2 per cent in 2026 before 1.5 per cent in 2027.
Business investment stays weak at 1.6 per cent this year, while net trade remains negative despite 3.1 per cent export growth.
Inflation will stay above target at 3.7 per cent in 2025, with rates at 4 per cent.
Earnings outpace inflation.

Fibre2Fashion News Desk (HU)