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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.

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.