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UK Growth Forecast Cut to 1.2% and 1% as Tariffs and Tax Hikes Weigh on Investment

Rising payroll taxes have dragged investment down to pandemic-era lows ahead of the government’s industrial strategy.

People walk across Waterloo Bridge with skyscrapers of the City of London financial district and St Paul’s Cathedral seen behind, in London, Britain, March 28, 2025. REUTERS/Toby Melville/File Photo
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Overview

  • The CBI has trimmed its December growth forecasts by 0.4 percentage points for this year and 0.5 points for 2026 after citing US tariffs and rising employment costs.
  • Firms’ investment plans have fallen to their lowest level since the pandemic following April’s rises in national insurance contributions and the national living wage.
  • The CBI expects inflation to stay above the Bank of England’s 2% target this year because of higher household energy and regulated water bills before easing to 2.5% in 2026.
  • Household spending is projected to underpin growth in 2026 as cooling inflation and slower borrowing costs support consumer demand.
  • Louise Hellem has urged the government to leverage its upcoming industrial strategy to strengthen domestic conditions and shift the economy out of low gear.