UK economic growth is projected to be significantly delayed, with forecasts suggesting a postponement of recovery for up to two years, according to the latest EY ITEM Club report. The report highlights a combination of global trade disruptions, persistent inflation, and weakened business and consumer confidence as primary factors contributing to the sluggish outlook.
The EY ITEM Club, utilizing the UK Treasury’s economic modeling, has revised its growth projections downward, estimating GDP growth of 0.8% for 2025 and 0.9% for 2026. These figures represent a notable decrease from previous forecasts and fall below the International Monetary Fund’s recent estimates of 1.1% and 1.4% for the same years .
A significant contributor to this downturn is the imposition of new tariffs by the United States, including a 10% baseline tariff on imports and a 25% duty on UK exports such as steel, aluminum, and automobiles. Given that approximately 16% of UK goods exports are directed to the U.S., these measures are expected to substantially impact trade volumes .
Domestically, the UK faces additional challenges. Persistent inflation, currently at 4.6%, is projected to decline to 2.8% by the end of 2024, reaching the Bank of England’s 2% target in 2025 . However, elevated interest rates and increased household expenses, including rising energy and council tax bills, are straining consumer spending power. This financial pressure is reflected in declining consumer confidence and a rise in the number of businesses experiencing critical financial distress.
Anna Anthony, EY’s UK & Ireland managing partner, remarked, “There had been signs that the economy was exceeding expectations in the opening months of 2025, but a combination of global trade disruption, uncertainty, and persistent inflation look likely to postpone the UK’s return to more moderate levels of growth” .
While the Bank of England’s recent interest rate cuts may offer some relief, the overarching uncertainty in global markets and domestic fiscal challenges suggest that a robust economic recovery may not materialize until after 2026.
