UK Faces Economic Challenges as Inflation Rises and Job Market Weakens

The Bank of England predicts a temporary inflation spike, while fiscal constraints and tax policies pressure businesses and public finances.

The National Institute of Economic and Social Research (NIESR) forecasts UK economic growth of 1.5% in 2025, but warns of limited fiscal flexibility for future shocks.
Inflation is expected to peak at 3.7% later in the year, driven by energy prices and other external factors, before stabilizing closer to the Bank of England's 2% target in 2026.
Bank of England policymaker Catherine Mann advocated for a larger interest rate cut to 4.25%, citing a weakening job market and economic slowdown; the majority opted for a smaller reduction to 4.5%.
Rising employer National Insurance contributions and other budget-related costs are leading businesses to cut jobs or freeze hiring, with smaller firms particularly vulnerable.
Chancellor Rachel Reeves faces pressure to balance fiscal rules, with no remaining budgetary buffer, raising concerns about potential tax increases or spending cuts later in the year.