Chancellor Rachel Reeves has been warned by top industry bosses that the UK economy remains “stuck in first gear” as the British Chambers of Commerce (BCC) said growth would be slightly higher than expected this year.
The BCC has revised its GDP growth estimate for 2025 up to 1.3 per cent from 1.1 per cent in its previous forecast.
But growth is expected to slow down next year as the UK economy is forecast to expand by just 1.2 per cent in 2026.
Vicky Pryce, chair of the BCC economic advisory council, said the outlook for the UK economy in the next two years “looks weak”.
“The economy will continue to be buffeted by global headwinds, alongside ongoing worries about high bond yields,” Pryce said.
“Government expenditure has bolstered the economy this year, but the spending taps are likely to be tightened very soon across Whitehall.”
Rachel Reeves has to ‘drive productivity’
David Bharier, head of research at the BCC, said new forecasts showed economic growth was “stuck in first gear”.
He said executives across the country would be looking closely at the policies Rachel Reeves unveils at this year’s Autumn Budget, with tax rises worth at least £20bn widely expected.
“The Chancellor faces some tough decisions as more tax rises risk severely undermining sentiment and investment even further,” Bharier said.
“Sustainable growth depends on driving productivity through modern infrastructure, a skilled workforce, and seizing the opportunities of the AI revolution.”
Forecasters said business investment will remain low. BCC analysts said there would be 1.6 per cent growth this year followed by a slight uptick of 1.9 per cent next year.
Inflation will also prove to be a trouble for policymakers as it will fail to reach the Bank of England’s two per cent target next year, according to projections made by the industry body.
The BCC were slightly more optimistic than the Bank of England with regard to unemployment as it said it would not hit five per cent in the next year.
A rise in average earnings will also remain “significantly above inflation” with growth of over four per cent expected.