Higher government and consumer spending will restore growth in the UK economy in 2025, helping it to outperform European peers that are more exposed to the threat of political instability and new trade wars.
But households will not feel much better off, as wage growth will slow and rising unemployment will fuel anxiety. Meanwhile, inflation will linger stubbornly above 2 per cent, limiting the scope for the Bank of England to cut interest rates, as businesses feel the effects of rising taxes.
These are the thoughts of nearly 100 economists surveyed by the FT about the UK economy in the year ahead.
The clear consensus is that Britain would continue to lag the more dynamic US economy and GDP growth would be too slow to avert the need for the government to raise taxes again later in the parliament.
Below are the full responses to questions about the economic outlook for 2025. Entries are in order of submission.
Will the UK fare better or worse than other G7 economies in 2025 and why?
Philip Booth, professor of finance, public policy and ethics, St Mary’s University, Twickenham: At the low end, the recent budget has loaded costs on to an already problematic labour market, especially for the employment of low-paid and part-time workers. In addition, increases to the minimum wage and increased employment regulation will damage more and more people who are at the margins of the labour market. I would therefore expect any increase in employment to be muted and for this to affect growth.
Andrew Smithers, founder of consultancy Smithers and Co: The US and Japan seem on track to do better than UK, France and Germany.
Costas Milas, professor of finance, University of Liverpool: The UK will fare worse because our productivity problem will hold us back. Higher employment costs (namely because of higher employers’ national insurance contributions) following the Budget will make firms less willing to invest therefore undermining productivity.
Maxime Darmet, senior economist, Allianz Trade: The UK will fare worse than the US but better than other European nations. US growth will remain supported by loose financial conditions, dynamic policy-induced investment spending and strong household consumption, while European nations will face headwinds from political uncertainty (France, Germany) and fiscal consolidation (Italy, France). The UK will benefit from “base” effects of two years (2023-24) of very weak growth, the loosening of monetary policy which will be increasingly supportive to spending, and strong public investment. Nevertheless, structural headwinds (labour and skill shortages, anaemic productivity) will continue to weigh on the outlook.
Joseph Pearlman, professor of economics, City University London: France, Germany, Italy and the UK are likely to fare worse than the others because of Brexit. Creating trade frictions with one’s nearest neighbours is a sure way of reducing GDP in the short to medium term.
Tim Leunig, chief economist, Nesta: At some point, we will do better, because we have slipped back. Falling behind gives opportunities to catch up, for sure. But I don’t see a lot of evidence that it will be next year.
Anonymous: Output growth is likely to be a little higher than in the EU states but noticeably lower than in the US, with the differences mainly attributable to the differing paths for fiscal policy.
Linda Yueh, fellow in economics, St Edmund Hall, Oxford university and adjunct professor of economics, London Business School: Worse than the US based on the strength of the US recovery and expected tax cuts. Compared with the rest of the G7, it will depend on the pace of loosening monetary policy as well as any changes to the fiscal stance.
Anna Titareva, European economist, UBS: We forecast UK GDP to grow 1.5 per cent in 2025, this would be faster than 0.9 per cent in the Eurozone but slower than 1.9 per cent in the US and 2 per cent in Canada. In general, we expect ongoing recovery in real incomes and, hence, private consumption, to offset growth headwinds from tight (but easing) monetary policy, gradual tightening of fiscal policy and external sector weakness.
Chris Martin, professor of economics, University of Bath: It will probably be towards the bottom. The negative effects of the Budget will impact in 2025, whereas the positive impacts will probably to a few years to show through.
Diane Coyle, professor of public policy, University of Cambridge: The UK has had a weaker productivity performance and a much weaker investment performance than comparable economies for years, so is going to perform worse in terms of growth over the medium term. As for 2025, the only thing that makes it possible the UK would do much better than others is because of the possible political disruptions elsewhere.
Anonymous: Better than France, Germany, Italy, Canada and Japan. Worse than the US.
Howard Davies, professor of practice at the Paris Institute of Political Science: I expect the UK to be in fifth position on growth, so just outside the Champions League places.
The government have chosen to frighten businesses, which has hit confidence. And persistently high wage increases will reduce the Bank of England’s room to cut rates.
Sanjay Raja, chief UK economist, Deutsche Bank: We expect the UK to be in the middle of the pack with regards to GDP growth in 2025. We see UK GDP growth running closer to 1.3 per cent — with balanced risks. We think the US (2.5 per cent), Japan (1.5 per cent), and Canada (2.1 per cent) will see a little stronger growth next year.
David Page, head of macro research, Axa Investment Managers: We forecast UK growth to outperform most G7 economies (Germany, France, Italy and Japan) but to underperform North American economies (US and Canada). The UK economy appears to be on a more stable footing politically, which should allow some improvement in investment spending against a background where headwinds to the consumer appear to be fading into the rear-view mirror. Compounded by unexpected fiscal stimulus from the new government, we expect UK growth to deliver 1.5 per cent in 2025 and exceed growth in Japan and Europe, which looks set to struggle from both cyclical and more structural challenges as well as heightened political uncertainty. However, the US economy continues with solid momentum that we think will be helped by short-term optimism about the new administration’s policies. Solid US growth and significant Bank of Canada easing is also likely to deliver faster growth in Canada in 2025.
Anonymous: Worse than the US, Canada and Australia, but better than the EU, France and Germany.
Paul Dales, chief UK economist, Capital Economics: When it comes to GDP growth in 2025, the UK may secure a silver or bronze medal in the G7 race. What’s more, our forecast of an acceleration in UK GDP growth from 0.9 per cent in 2024 to 1.6 per cent in 2025 would be a bigger acceleration than in the Eurozone (0.8 per cent to 1.0 per cent) and come while US GDP growth is slowing (2.8 per cent to 2.0 per cent).
Fhaheen Khan, senior economist, Make UK: The UK’s economic performance will probably be slightly worse than the G7 average. Though the UK should not be singled out for the headwinds it is facing as countries like Germany, France and Japan are managing their own challenges, the incoming increase in business costs, in particular employer NICs, will be a heavy pill to swallow for industries that have been combating higher bills for several years already.
At this point there’s little room left for further cutbacks for businesses. Therefore, the response to the cost challenge will manifest in a combination of the following ways, including raising prices, cutting staff, limiting wage increases and delaying investment projects until economic conditions improve. This will negatively affect investment and consumer spending leaving us on the back foot against many of our competitors.
There is an alternative path here, however, which will depend largely on the details of incoming government plans, such as the industrial strategy and infrastructure plans. If these are designed with a sound methodology and given sufficient backing by the state it will restart the flow of investment towards growth in the UK.
Neville Hill, co-head, Hybrid Economics: The UK should be towards the top of the pack in terms of growth in the G7 next year. Many other G7 economies face their own idiosyncratic tailwinds and headwinds. The EU countries face some tough cyclical and structural headwinds that the UK may be spared, whilst the US is likely to see ongoing support from fiscal policy.
One of the stiffest headwinds against UK growth in recent years — the economic adjustment associated with Brexit — is now abating. Indeed, the resulting transformation of the UK’s export mix towards services may lend some resilience in a world where the US may impose tariffs on goods and Chinese competition in high-end manufacturing becomes acute.
Those positive features of the UK will be offset to some extent by tough fiscal tightening next year. That will mean the UK will underperform the United States. But inasmuch as much of the United States’ recent and prospective strong growth is underwritten by fiscal incontinence, the UK’s growth should at least be more sustainable in the medium term.
Andrew Goodwin, chief UK economist, Oxford Economics: We expect US exceptionalism to continue and for the UK to be clustered with most of the other G7 economies in the 1 per cent to 1.5 per cent range for GDP growth. Two factors should support UK growth in 2025. First, we expect the consumer to shed some of the extreme caution that has characterised 2024 — combined with modest real income growth, this should mean a stronger picture for consumer spending. Second, we expect some support from higher government spending. However, we think the OBR is much too bullish on the potential for the public sector to drive growth. Indeed, fiscal policy as a whole is likely to weigh on growth in 2025.
Nick Bosanquet, professor of health policy, Imperial College London: Growth likely 1 to 1.2 per cent, just above Germany, France and Italy. Better but only just. OECD forecasts 1.7 per cent and IMF 1.5 per cent. These forecasts are too optimistic. Reasons for expecting such low growth? Negatives in demand from rising income taxes, over from the last government plus household anxieties. Supply side will be impacted by rising costs which will hit from April, resulting in more service closures. Investment will be mainly for replacement . . . falling profit share and risks for international markets.
Michael Wickens, emeritus professor of economics, University of York: About the same. The UK economy has nearly always fluctuated more less similarly to other G7 economies as they all tend to reflect movements in the US. The small differences beloved by City economists are largely irrelevant.
Panicos Demetriades, emeritus professor of economics, University of Leicester and former governor of the Central Bank of Cyprus: According to the latest IMF and OECD forecasts, the UK is expected to grow faster than most other G7 economies, although its growth rate will be lagging considerably behind that of the US and Canada. However, the UK still lags behind all other G7 economies when it comes to real GDP growth compared to its pre-pandemic level. There is no doubt in my own mind that the UK’s prospects have improved and will continue to do so, not least because economic policy uncertainty has been reduced. Moreover, I am slightly more optimistic than in previous years in relation to trade frictions with the EU as it appears to be the case that the new Labour government is determined to renegotiate the Brexit details, with a view of strengthening the relationship and reducing non tariff barriers. Political and economic stability will also be fundamental in improving investment and productivity which is the basis for future growth.
Evarist Stoja, professor of finance, University of Bristol Business School: I anticipate the UK’s economy will maintain its lacklustre performance that has characterised it for quite a while now. If it will look better relative to some other major economies, in particular the Eurozone members of G7, this will be mainly because of their significant economic and political problems rather than UK’s growing strength. Unfortunately, of the main problems that the UK economy is facing, the low productivity can only be addressed in the long term not the medium, much less the year ahead.
Stephen Millard, deputy director for macroeconomic modelling and forecasting, NIESR: I expect subdued growth of around 1.3 per cent in the UK and most G7 economies next year given ongoing geopolitical tensions and global trade fragmentation. The one exception is the United States where I expect growth to remain strong at around 2 per cent.
David Cobham, professor of economics, Heriot-Watt University: Somewhere in the middle — growth below the US but above major EU countries. It will take time for Labour’s policies to work, if they do work, so 2025 should see some rebound but not a big surge.
Nicholas Barr, professor emeritus of economics, London School of Economics: About average. The government’s plans for growth set the right objective but however successful, their effects will necessarily start gradually and ramp up over time.
Andrew Oswald, professor of economics and behavioural science, University of Warwick: Worse than the USA, certainly. There will be a Trump bump there and a dawning realisation in the UK that without income tax and VAT rises, we cannot make the damn sums work.
Robert Wood, chief UK economist, Pantheon Macroeconomics: Middle of the pack, better than core Eurozone countries but worse than the US. Tax cuts will probably help US growth while the Eurozone will probably be worse hit than the UK by US tariffs and weak Chinese growth. UK fiscal stimulus will also help UK growth relative to others.
Martin Weale, professor of economics, King’s College London: Probably broadly similar, not doing as well as the US but perhaps better than France, Germany and Canada.
Tomasz Wieladek, chief European economist, T Rowe Price: Only the United States will fare better than the UK. The UK is the only G7 economy to experience a significant fiscal impulse in 2025. After a strong first half in 2024, growth stagnated due to overly restrictive monetary policy. But the large expansion in government spending that the chancellor announced in October will propel growth in 2025. Furthermore, the UK will also be more insulated from trade wars than the rest of the G7. Its exports are mainly services based and a direct trade confrontation with the US is unlikely. This is different from the rest of the G7 economies. A tariff-proof export model and strong fiscal stimulus will propel the UK to the 2nd place in the G7 league table, right behind the US.
Matt Swannell, chief economic adviser, EY Item Club: The EY Item Club expects solid but fairly limited growth for the UK in 2025, while there are positive reasons to believe global growth will continue at a decent pace. In the UK, healthy real income growth and less consumer caution should support household spending. But set against that, past interest rate rises will weigh on disposable incomes as some households continue to refinance mortgages at higher interest rates. The recent Budget helped to loosen the purse strings. Nonetheless, fiscal policy is still set to tighten, and further tax rises may be needed for the government to meet its fiscal targets.
Michael Saunders, ex-MPC, now senior adviser at Oxford Economics: Around the middle, probably below average again in terms of GDP growth per head.
Andrew Wishart, senior UK economist, Berenberg Bank: The UK will fare better than the Eurozone but worse than the US in 2025. Domestic demand is already growing substantially faster in the UK than in the largest European economies, suggesting that the current level of interest rates is not that restrictive. In 2024 much of the resilience in domestic spending was offset by rising imports and weak exports. Now the trade balance has widened in response to the appreciation of the pound against the euro, more of the strength of domestic demand should become apparent in the headline numbers in 2025.
The UK’s challenge continues to be productivity growth, where the US is a class apart. As the incoming Trump administration will provide fiscal stimulus, the US growth is likely to remain strong (+2.4 per cent yoy) while the UK records a more modest +1.3 per cent yoy expansion.
Alpesh Paleja, lead economist, CBI: The UK is unlikely to be the worst-performing economy in the G7 next year, but it’ll probably be somewhere lower-middle of the pack. On the one hand, growth in the Eurozone will probably remain lacklustre, which may be exacerbated by growing political uncertainty. On the other, the US is likely to continue soaring ahead, though the extend of any tariff-related measures by the incoming Trump administration remains unclear.
Ray Barrell, emeritus professor of economics and finance, Brunel University London: The UK and the US should grow more strongly than the other G7 economies in 2025, but will also see higher rates of inflation than the others. Better or worse depends on the weights you put on these indicators. In the UK an increase in government spending in excess of tax rises will boost demand quite noticeably.
Ethan Ilzetzki, associate professor, LSE: The UK economy will perform worse than the US and the UK, but better than other G7 economies. Productivity growth has been strong in North America and despite Trump’s unnecessary trade wars, the US economy will exhibit strong growth. The UK will hopefully start to see the early fruits of the government’s public investment and construction strategy. Continental Europe and Japan will continue to be sclerotic.
Anonymous: Broadly in line with others, apart from the US which will grow at a more robust rate.
Vicky Pryce, chief economic adviser, Centre for Economics and Business Research: It is not clear at this stage. Growth in the UK seems to have slowed down at an alarming rate in Q3, with quarter-on-quarter GDP expanding at the lowest rate in G7 except against an equally poorly performing Germany. Worryingly, towards the end of 2024, UK GDP seems to have recovered more slowly from the pandemic than all other G7 countries, except again, Germany. And although most forecasters expect that the UK will nevertheless do better than others except for the US and Canada in 2025 due to higher UK government spending announced in the October 30 Budget, this is increasingly in doubt if business and consumer confidence, both hit by the uncertainty before the budget and the measures announced in it, fail to recover and interest rates come down more slowly than elsewhere.
Tony Yates, independent economist: Hard to answer this; we seem to have acute structural problems [unfolding costs of Brexit, planning bottlenecks, political pressure on immigration] yet we have a year of relative political stability, in contrast to the US, Germany, France, Italy.
David Meenagh, professor of economics, Cardiff University: I expect the UK to grow more than the European G7 countries, but less than the North American ones in 2025, and similar to Japan. Recent tax changes will lead to slower growth in the UK.
Kate Barker, trustee chair at USS: If this means growth — less well than the US — but the US may tend to be storing up future problems. Better than the EU unless France and Germany become more expansionist.
Yael Selfin, chief economist at KPMG: UK performance is expected to be between a strong US and a relatively weak Eurozone, as strong government spending could offset a more cautious private sector in 2025.
John Philpott, director, The Jobs Economist: The UK will be a middle ranked performer in the G7 in 2025. While tax hikes and regulatory change will moderate economic growth, the UK economy will overall be stimulated by higher government expenditure and public investment plus a gradual easing of monetary policy. This will enable the UK to outperform G7 laggards, especially the big European economies, but it continue to trail the United States which for much of the year will still enjoy the lingering growth advantages of Bidenomics.
Andrew Mountford, professor of economics at Royal Holloway, University of London: The basic facts for this question are reasonably clear from the official figures. The UK as a whole has grown poorly in comparison with most of the G7 since Brexit (Germany being the exception) but is forecast to have a comparatively better year in 2025. But, as I say every year, what really matters is the underlying rate of growth not a single year’s increase in output. Growth compounds. The difference in income over 25 years from a 0.5 per cent annual real growth rate — (1.005)^25 — and a 2.0 per cent annual real growth is over 50 per cent! The UK’s current rate of productivity growth is about 0.5 per cent, whereas the US average productivity growth rate since 2000 is 2.0 per cent.
Francis Breedon, professor of economics and finance, Queen Mary University of London and member of Scottish Fiscal Commission: Roughly middling — US is likely to continue to outperform whilst Europe struggles. As usual the UK will be somewhere in between.
Lena Komileva, chief economist at G+ Economics: UK growth is set to outperform against G7 peers, apart from the US, as stronger public consumption and investment, and elevated household savings, offset the drag from net trade. However, a challenging international trade environment, higher taxes and market borrowing costs, and pressure on profit margins, will weigh on business investment, challenging the outlook for a sustained recovery.
Gerard Lyons, chief economic strategist, Netwealth: I expect UK growth to disappoint this year, around 1 per cent. Increasingly, the terms of reference should be with the G20, to reflect the shift in the balance of economic power to emerging economies — and in particular to the Indo-Pacific. The key story in the G7 will be the strength of US growth versus the rest. This will be particularly noticeable compared with the four European countries that are members of the G7, including the UK. Western Europe looks set to be the slow growth region of the world economy for the foreseeable future. While forecasts in recent years have often been too pessimistic about the UK’s outlook, it nonetheless shares the same structural challenges as the major EU members.
Gary Styles, director of GPS Economics: The UK is likely to underperform the other main G7 economies. The recent data for the UK on growth and productivity has been very disappointing and this is unlikely to change in the short-term. Talking about the need for economic growth is not the same as delivering above average growth and productivity.
Bart van Ark, professor of productivity and managing director at The Productivity Institute, University of Manchester: The UK should be in the upper quartile of G7 performers in 2025, mainly due to the relatively strong spending stimulus from the last budget. Business investment and productivity are unlikely to be major growth drivers of GDP in 2025, because of the many barriers the UK economy still faces — such as infrastructure, planning, and skills and training.
Ricardo Reis, professor of economics, LSE: Worse than the US, better than all the others. But, confidence bands for GDP growth in all seven of them overlap with each other, so anything goes.
Jumana Saleheen, chief economist and head of investment strategy group, Vanguard Europe: The UK is likely to fare better than the euro area but worse than the US economy in 2025. We expect UK growth of 1.4 per cent in 2025, compared to 0.5 per cent in the euro area and 2.1 per cent in the US. The UK outlook has brightened following the autumn Budget, where the announced fiscal loosening has been front-loaded. In Japan, we expect an improvement in consumption and trade to push growth up next year to 1.2 per cent.
The global outlook for 2025 may look and feel like a soft landing: but our view is that what we see has more to do with “luck” than “policy”. The US has been lucky — endowed with the much sought after productivity improvements and favourable labour supply. Europe has been less lucky, dealing with the lingering effects of the energy crisis and weak external demand. In a similar vein we expect 2025 to be shaped by supply side forces including the emerging risks from fiscal policy, potential tariffs and geopolitics.
Jessica Hinds, economist, Fitch Ratings: On our forecasts, the UK economy will be the second fastest growing G7 economy in 2025, behind the US. We expect the UK economy to grow by 1.8 per cent in 2025, partly reflecting some catch-up after two years of below-potential growth but also reflecting less restrictive monetary policy and the likely continued improvement in households’ disposable incomes in real terms as wage growth outpaces inflation.
Paul De Grauwe, professor in European political economy, LSE: Depends on what you mean by “fare better or worse”. If you mean growth of GDP then I would think that the UK will be doing about as well as the average of the G7, probably better than Germany but worse than the US. If you mean inflation, this will also depend on the countries you compare the UK with. Probably, better than the US but marginally less well compared to the Eurozone countries.
Kallum Pickering, chief economist, Peel Hunt: While the UK is unlikely to top the G7 growth league in 2025 (that will probably be the US, again), it is likely to fare better than the subdued average caused by weakness in Germany, France and Italy. Although risks at the start of the year are tilted to the downside and the confidence shock coming from the anti-employment budget measures highlights the still-fragile situation after several years of unusual shocks, the combination of fiscal loosening, gradually less tight monetary policy, and still the most stable political environment since before the Brexit vote in 2016 can underpin a sustained expansion in domestic activity. Importantly, key underlying private sector fundamentals are in decent shape. Banks are well-capitalised and private debt levels are low versus incomes. Real incomes are also rising on trend. As long as no new major external shocks interrupt the expansion, real GDP can expand at a rate of around 1.5 per cent in 2025.
Phil Thornton, lead consultant, Clarity Economics: This is an impossible question to answer as it depends on seven broadly independent variables — something that the UK government should have realised when it set a goal of faster growth than other G7 members. It will do worse them some, including the US, because its current fiscal mix of tax rises and supply-side reforms will reduce growth as the tax hikes bite in the short term while the reforms will take longer to have an impact. But France, Germany and Italy have problems of their own and the UK could end up doing less badly than them.
Jonathan Haskel, professor of economics, Imperial College Business School, Imperial College London: 1. Worse than the US in terms of GDP per hour growth: the US is investing more in software and will perhaps have more of a take off from AI than other countries.
2. About the same as Europe in terms of GDP due to Budget boost.
3. Of course, if we get into a tariff war with the US, everyone will be dragged down. I hope this is unlikely.
Andrew Simms, co-director, The New Weather Institute: The impact of Brexit’s act of economic self-harm lingers in new cost barriers, additional bureaucracy, broken supply chains and loss of political good will. That will continue to make life unnecessarily harder for the UK compared to France, Germany and Italy (as well as other EU countries). The US will continue to enjoy the advantage of the Democrats’ substantial green stimulus spending under the Inflation Reduction Act — a UK equivalent of which the new Labour government downscaled and timidly retreated from. Canada’s prospects, meanwhile, depend to some degree on whether incoming president Trump goes ahead with his threatened trade tariffs. However, if Labour finds a way to rebuild EU links, and rediscovers the geopolitical and triple economic, social and climate benefits of raising its ambition on public investment for low carbon transition its prospects could improve dramatically.
Bill Papadakis, macro strategist, Banque Lombard Odier: Better than most, given population growth, pent-up demand, and improving real household incomes.
Ian Plenderleith, chair, BH Macro: Better than France and Germany, but worse than rest, principally because of continuing low UK productivity.
Michael Taylor, economist, Redburn: With the exception of the US, the UK will outperform other G7 economies next year. The main reason is that the UK consumer is better placed to support growth with housing market activity reviving, balance sheets in overall good shape — including a relatively high savings rate — and modestly rising real wages. I do not expect a significant rise in unemployment to undermine this.
Matt Whittaker, chief executive, Pro Bono Economics: Most likely the UK will be in the middle of the pack, faring a bit better than European peers but falling short of performance in the US and Canada. Growth in the UK will be supported by public spending and by the return of political stability, but we’re unlikely to see especially rapid expansion anywhere in the G7.
Victoria Clarke, UK chief economist, Santander CIB: We expect the UK to be a contender for the medal positions in the G7 growth contest in 2025. It is unlikely to match the pace of the US or even Canada, but looks set for a similar showing to Japan, and appears likely to outperform the euro area, where we expect weaker performances in France, Italy and Germany. The UK growth picture is, though, buoyed by the relative strength of government investment and spending, after the loosening in the fiscal taps in the October Budget; without this, our UK growth forecast would have looked more akin to our euro area numbers than to our US outlook.
Suren Thiru, ICAEW economics director: While the temporary sugar rush from stronger public spending and investment should help the UK outdo some G7 economies, the squeeze from looming tax rises on business and growing global uncertainty means that a mid-table finish among these countries is the probably the best we can hope for. Though the UK may enjoy a brighter year, sectors such as retail and hospitality face a particularly challenging 2025, given their direct exposure to the impending jump in business costs, including April’s rise in employers’ national insurance. The government’s industrial strategy is a key opportunity in 2025 to provide the certainty, clarity and stability for business to encourage investment and boost growth. The risks to the UK’s economic prospects are skewed to the downside with poor productivity, supply side constraints and high economic inactivity likely to persist, leaving our economy less resilient to external shocks.
Simon Wells, chief European economist and Liz Martins, senior UK economist, HSBC: UK growth should be higher than for other large European economies which isn’t saying much. But we expect it to fall some way short of the US. A good chunk of UK growth is likely to come from the public sector, with the private sector perhaps growing more in line with the Eurozone. There are some reasons for optimism: the UK a fairly buoyant housing market and, if we are right, interest rates that will come down more quickly than currently expected. Plus a wild card: compensation for mis-sold car finance could lead households to splash out a bit more.
Susannah Streeter, head of money and markets at Hargreaves Lansdown: The UK should fare among the fastest growing nations in the G7 but behind the US and Canada as the lag effect of high interest rates eases off, with more cuts eyed on the horizon and the UK Budget provides a tailwind due to the increase in public spending.
Gaurav Ganguly, senior director economic research at Moody’s Analytics: Better than some, worse than others.
David Bell, professor emeritus of economics, University of Stirling: I expect the UK will fare worse than the US but its overall performance will be sluggish and comparable with that of Canada, Germany, France, Italy and Japan.
Noble Francis, economics director, CPA: The UK’s GDP growth in 2025 is likely to 1.6 per cent. This growth would be substantially better than G7 economies such as France and Germany. In France, tighter public spending and poor consumer and business confidence are likely to constrain economic activity whilst in Germany, manufacturing output is likely to continue to suffer, especially in energy-intensive sectors. However, UK GDP growth in 2025, is still likely to be considerably slower than GDP growth in Canada and the US, where there are considerably stronger economic prospects over the next 12 months and GDP growth is likely to average over 2.0 per cent in both countries.
Barret Kupelian, chief economist, PwC UK: It will perform better than the average G7 economy, driven by markedly worse performance from the core European economies and especially Germany. However, the one hidden surprise is that beyond the G7, the peripheral economies will perform markedly better.
John Muellbauer, senior research fellow of Nuffield College, Oxford university, and professor of economics and a senior fellow of the Institute for New Economic Thinking at the Oxford Martin School: In the bottom 40 per cent of the distribution.
James Smith, UK economist, ING: The UK stands to grow more quickly than most of Western Europe next year, according to ING’s annual growth forecasts. That perhaps says more about other parts of Europe than the UK. But our forecast of 1.4 per cent UK growth is also boosted by the recent budget. Unsurprisingly, such a dramatic increase in spending (albeit in comparison to unrealistic assumptions at the March Budget) will come with a decent multiplier effect. But we are less optimistic than the Office for Budget Responsibility on growth and we think if anything the risks are on the downside. Trump’s trade policy is a risk. But more so, the UK jobs market is under pressure. Payroll-based employee data shows that excluding government-heavy sectors, employment has fallen modestly in 2024. If that picks up steam in 2025, egged on by recent tax hikes perhaps, then growth will inevitably disappoint. That in turn raises the chances of further sizeable tax increases next autumn.
Anonymous: Better I hope. Political stability in contrast to most other G7 countries should attract investment. Falling interest rates and a looser fiscal policy should provide a boost. What is lacking so far are the “animal spirits” of enterprise and a sense of optimism. The government has been downbeat and sought to lower expectations — which is understandable but has an economic cost. They can turn that around if they take brave action on planning and construction.
Dhaval Joshi, chief strategist, BCA Research: Better. The UK will be one of the ‘cleaner dirty shirts’ among the G7 economies for several reasons:
1. The UK economic model is not going through the identity crisis that, say, Germany is going through.
2. The UK will be relatively unscathed by Trump’s tariffs, at least compared to other G7 economies.
3. The UK has political stability compared to some of the other G7 economies.
Thomas Pugh, UK economist, RSM UK: The US has been the clear outperformer since the pandemic and that is set to continue in 2025. However, the UK is likely to grow substantially quicker than the Eurozone, helping to close some of the gap that has opened up since 2019. Our forecasts suggest the US will continue to outperform over the next two years, although by a smaller margin as growth in the UK and Eurozone picks up.
There will be a larger divergence in inflation prospects in the major developed economies. Inflation looks set to stabilise in the Eurozone and the US next year, although that will partly depend on the new administration’s economic policies. But inflation will rebound in the UK due to the measures announced in the budget.
Colin Ellis, senior visiting fellow, Bayes Business School: The UK should outpace the other European G7 economies — Germany, France and Italy — and also Japan. It won’t match the US; it’s probably a toss up whether Canada or the UK sees higher growth.
Philip Shaw, chief economist, Investec: Better, at least compared with the rest of Europe and Japan. The UK economy is less exposed to the downturn in global manufacturing thanks to — i) its strong services orientation and ii) a medium-term fiscal consolidation programme that is more established than in other European countries. This means that chancellor Rachel Reeves was able to loosen the fiscal stance at October’s Budget, whereas a number of her European counterparts are needing to tighten policy. A natural tendency would be to view Britain relatively unfavourably vis-à-vis the US, but a wild card is trade barriers. If the Trump administration imposes widespread tariffs on imported goods, US growth prospects could be hit by higher inflation eroding real incomes and also by a reduced willingness of the Fed to cut interest rates. A full-blown tariff war would of course unsettle all economies, but the domestic economy could escape relatively lightly, as only 45 per cent of total UK exports are goods.
Jagjit Chadha, professor, University of Cambridge: I suspect we will do little to catch-up with the longer term performance of our G7 friends. There are just too many problems to fix. From a creaking judicial system, an urgent need for civil service rationalisation, a need to get people back into work and a worryingly exposed fiscal policy and relatively tight monetary policy. Finally, much work needs to be done to repair our international standing.
Neil Blake, global head, forecasting and analytics at CBRE: Better than most but not as well as the USA. A fiscal boost will benefit the UK but tax increases and weak investment are negative factors
Jonathan Portes, professor of economics and public policy, King’s College London: I would guess that we will again be in the middle of the pack. There are significant downside risks in the Eurozone as a result of political events and policy paralysis in France and Germany. The US may outperform in growth terms if Trump cuts taxes (even more than expected) — but this will not in itself mean the US is faring “better” since the US’s fiscal trajectory is already unsustainable.
Andrew Sentance, independent business economist: I would expect the UK to lag behind the US but to perform similarly to other major EU economies. That has been the pattern in recent years and there seems little reason to expect a change.
Alfie Stirling, director of insight and policy at Joseph Rowntree Foundation: Improvements in living standards are likely to be underwhelming across the G7, due to continued disruption to global supply (from conflict and adverse weather events) and suppressed demand (from elevated interest rates). The UK is likely to continue to perform in the bottom half of the pack, as it has done since 2019, due to our elevated exposure to these headwinds and a lack of near-term remedial action from policy.
David Owen, chief economist, and Marchel Alexandrovich, partner, Saltmarsh Economics: In a world of relatively small differences (apart from the US, which may continue to outperform), we broadly expect the UK to grow in line with other G7 economies. Real wage growth, increased government spending (including public sector net investment), increased housebuilding and the need for companies to substitute capital for labour (partly in the move to net zero, as well as higher labour costs) should all help underpin domestic demand. Much of the economy has adjusted relatively well to higher rates. The big drag on growth remains net trade — this could continue to be the case in 2025; with exports of goods continuing to underperform and imports boosted by higher investment. Tariffs could further complicate the picture, alongside more pressure on companies to disclose their Scope 3 emissions (those embedded in complicated international supply chains), as well as those generated domestically.
Trevor Williams, visiting professor, University of Derby: Better but only because of a poor performance by Germany and France
Morten O. Ravn, professor of economics, UCL: One would hope that UK would outperform other G7 economies given its lacklustre performance over the past few years. In other words, one would expect some catching up. Nonetheless, the latest figures have been disappointing with business sector fixed investment spending being rather unimpressive and export performance being directly poor. Productivity growth remains an important Achilles heel. And there are probably still negative effects of Brexit affecting the UK economy. Together, the lack of strong growth is hampering the prospects for some fiscal space. I remain hopeful though that a consistent set of economic policies addressing past mistakes will set the UK on a better growth path.
Nina Skero, chief executive, and Sam Miley, managing economist, CEBR: The UK economy is expected to be in the middle of the pack in terms of G7 prospects, with a forecasted growth rate of 1.3 per cent. The US is expected to record much faster growth, reflecting its more resilient performance against recent economic headwinds. At the other end of the scale, Germany is expected to record slower growth than the UK. Europe’s largest economy is still contending with the issues posed by higher energy prices and the fallout from the Russia-Ukraine conflict, both of which adversely impacted its manufacturing sector.
George Buckley, chief UK economist, Nomura: Generally worse — we see growth stronger than the UK in the US, Canada, Japan and the euro area as a whole (just). However, Spain and a number of smaller economies are helping support euro area growth, and the UK — in our view — will beat Germany, France and Spain. The generally softer growth rate for the UK is just as much a story about a slowing UK outlook as it is about a robust outlook for North America.
Bronwyn Curtis, chair at Twenty Four Income Fund/International Portfolio NED: Growth in the G7 will be like a barbell. At the bottom end will be the European countries with growth of +/- 1 per cent, dragged down Germany and an exceptionally weak manufacturing/export sector. At the top end will be the US (and Canada) with another year of robust close to 2 per cent growth driven by strong consumption, higher real incomes and immigration. The UK will hover just above the European countries buoyed in the short term by the fiscal boost from the recent Budget. Post 2025 it may be a different story as the nature of the tax hikes will hit employment and growth.
David Vines, emeritus professor of economics and emeritus fellow of Balliol College, University of Oxford: Worse — combination of Brexit, other long-standing structural problems, and an unadventurous fiscally constrained budget.
Sonali Punhani, UK economist, Europe Economics, BofA Global Research, Merrill Lynch International: We expect UK growth of 1.5 per cent in 2025, slower than the US and Canada among the G7, but faster than the rest. On the back of the 1 per cent of GDP per year of fiscal easing, we upgraded our UK growth forecast by 40 basis points to 1.5 per cent in 2025 and by 20bp to 1.4 per cent in 2026. The near-term growth boost from front-loaded higher public spending and investment is likely to outweigh the negative impact of tax rises (the largest of which is the rise in employer NICs). The increase in GDP forecast reflects an upgrade to government consumption and investment, offset to some extent by a small downgrade to private consumption due to tax rises and higher inflation. However, consumer spending is still expected to grow in coming years due to real wage growth/ waning impact of rate hikes and there are some upside risks to consumer spending if the elevated savings rate falls.
But risks going into 2025 are high. First is the uncertainty on the pass-through of fiscal measures on the economy. We can’t rule out a potentially negative impact from the rise in employer national insurance on hiring, business investment or sentiment. The risk of imposition of tariffs from the US present another big source of risk for UK growth.
Jack Meaning, UK chief economist, Barclays: We’re expecting the UK to be middle of the pack in terms of growth relative to our G7 peers in 2025: ahead of our European counterparts but behind Japan and the North American economies. We expect UK growth to be 1 per cent, which just below our estimate of the potential growth rate.
John Llewellyn, co-founding partner, Llewellyn Consulting: Marginally better in GDP/inflation terms taken together because US tariffs will not improve US performance in the way the president-elect Trump expects; Canada will be closely caught up in the US imbroglio; Germany and France have deep politico-economic problems of their own; and Japan as always faces chronically weak domestic demand. Italy, unusually, may outperform its other G7 peers.
Paul Hollingsworth, chief European economist, and Dani Stoilova, Europe economist, BNP Paribas: We expect the UK economy to be somewhere in the middle of the pack in 2025. We are cautiously optimistic on growth — the UK is likely to outperform the likes of Germany and France. However, we expect it to continue to lag the US.
Do you think the UK will still have an inflation problem at the end of 2025?
Philip Booth: No. Contrary to the views of the economic establishment, I believe that monetary growth is the main cause of sustained inflation and monetary growth is now under control. Despite the bizarre attack on the Shadow Monetary Policy Committee (of which I am a member) in an FT blog a few months ago, the SMPC correctly forecasted the sudden shifts in the prospects for inflation in 2005, after the financial crisis (when we proposed quantitative easing at an early stage) and in 2020-2022. We also predicted the sharp slowdown in inflation from 2023. As a group, we were almost unique in predicting these events (though Mervyn King analysed these issues in his recent book and has a grasp not shared by many others). Until the economics profession begins to understand, once again, the links between monetary growth, monetary policy and inflation and the channels through which monetary policy affects inflation, it will continue to misunderstand how economic shocks will affect the economy.
Andrew Smithers: Inflation is a permanent problem for all G7 countries.
Costas Milas: This is a tricky one and largely depends on Trump’s trade tariffs. Trump is a businessman and the last thing he wants is to undermine the prospects of the US economy. If, and this is a big if, he proceeds with his tariff-related threats of a lower scale that currently “advertised”, the risk of higher UK inflation due to international factors will be fairly low. That said, I urge the Bank of England’s policymakers to pay closer attention to money, namely Divisia M4 (which gives a weight to its components based on their usefulness in transactions). In brand-new (co-authored) research, I find that Divisia M4 is the most powerful predictor of UK inflation since the pandemic. Divisia M4 growth is currently at historical lows, so money should not, as things stand, add to domestically generated inflationary pressures.
Maxime Darmet: No, we don’t. While strong public investment and hikes to civil servants’ wages should keep inflation slightly above the Bank of England’s target, nevertheless, the fading of past supply shocks and prolonged weak demand will pull in the other direction.
Joseph Pearlman: No, unless political events intervene.
Tim Leunig: I don’t think we will have an inflation problem by the end of the 2025. We don’t have much of one now, and labour markets are pretty subdued. If the Ukraine war ends, Russian gas etc will start to flow, indirectly at least, which would put downward pressure on inflation and perhaps even prices.
Anonymous: Quite possibly. Underlying inflation is still running at least a percentage point too high and the rise in employer NICs announced in the Budget will provide a further upward impetus to inflation.
Linda Yueh: Yes, it’s possible that inflation will not be at the 2 per cent target at the end of 2025. But, the larger problem is that the level of prices, in contrast to the rate of inflation, will still be significantly higher than before the pandemic. This will constrict household disposable income as more is spent on the same basket of goods and services, which will contribute to a feeling that inflation is still an issue, albeit less of one than when inflation was double digits.
Anna Titareva: Overall, we expect inflation to average 2.5 per cent in 2024 and 2.3 per cent in 2025, before returning to 2 per cent in 2026. Our 2025 forecast implies inflation returning to close to the 2 per cent by the end of the year.
Chris Martin: Probably not a serious problem, as cost pressure are quite muted at present. But any one of a number of international crises could change that.
Diane Coyle: The supply side of the economy is not in good shape so a lingering inflation problem is certainly possible; but this depends a lot on the broader state of the world.
Anonymous: No
Howard Davies: Through the period of very low inflation we still ran at around the 2 per cent target, which the Eurozone was well below it. I expect that relatively poor performance to continue.
Sanjay Raja: UK inflation has cooled — but remains inconsistent with the Bank of England’s 2 per cent mandate. Second-round effects have been largely limited. But services inflation remains a problem — taking longer to cool given lingering wage pressures and big shifts in administrative/index-linked price changes. 2025 will mark a bumpy path given the likely pass-through of hefty employer tax rises. We do think the UK will have an inflation problem in 2025, but we should see encouraging signs through the second half of 2025. We see CPI pushing to 2.9 per cent in 2025, before returning to target in 2026. Risks to our projections are broadly balanced.
David Page: No. We do forecast headline inflation to remain modestly above target throughout 2025 (2.5 per cent on average) and only return to target in 2026. However, our expectation is that a more gradual easing in monetary policy restrictiveness will continue to see some loosening in the labour market bringing inflation lower over time. We believe that the year will see some of the more pessimistic, idiosyncratic longer-term inflation expectations for UK inflation present in financial markets (for example in current five-year/five-year break-even inflation expectations) to soften closer in line with international peers again.
Anonymous: No, because energy prices will go down once the Ukraine war stops, but there will be underlying inflationary pressures over subsequent years.
Paul Dales: Even if CPI inflation is still above the 2.0 per cent target at the end of 2025, I think it will be clear by then that the back of high inflation has been broken. In 2026, CPI inflation may spend more time below the 2.0 per cent target than above it.
Fhaheen Khan: Inflation will remain a concern for both businesses and households over the next 12 months. Despite the pace of inflation slowing substantially this year, the rising cost of food, fuel and energy will remain a drag on household wallets. Even if inflation slows further due to slowing demand, many businesses will respond to the cost challenge by raising prices and limiting wage growth. There is a material risk that alongside the higher cost of goods, higher energy costs and the potential introduction of tariffs from the US will result in a temporary spike in inflation.
This puts the central bank in a precarious position as many will hope that stubborn inflationary pressures will be rebalanced by further cuts to the base rate, particularly as mortgage renewals approach deadlines next year. At best, this could delay decisions to reduce interest rates as there is little indication of any rate rises expected for the year.
Neville Hill: It depends what you mean by inflation problem!
I think inflation could still be a little above the Bank of England’s 2 per cent target next year. Although goods inflation is close to zero and should stay there, services inflation has been slow to abate. Since the Bank of England started lowering rates, money and credit growth have picked up, consistent with stronger domestic demand growth. At the same time, the rise in employer national insurance contributions will boost labour costs and, against the backdrop of easing monetary policy and an economy still close to full capacity, many services businesses may try and pass those higher costs on to consumers. So, there’s a good chance that core and headline inflation end 2025 above rates consistent with the 2 per cent target.
Would inflation at, say, just below 3 per cent, be a problem? It may be a presentational issue for the Bank of England, but not really a problem for the UK economy, in a way that high single (or low double) digit inflation would be. A little stronger nominal growth would help with the public finances, for example.
Andrew Goodwin: We expect inflation to average 3 per cent next year. This is partly because the large drag from falling energy prices will disappear. But we also think progress in reducing services inflation will be slow, partly because of the impact of tax rises (VAT on private school fees and the pass through of the employers’ NICs increase).
Nick Bosanquet: Yes — for firms’ share of prices being increased each month has risen sharply since 2022. In labour markets, push to restore differentials after compression by living wage increases . . . and strong push across public sector to improve real incomes especially for NHS groups. The secondary effects in wage bargaining are creating a persistent inflation problem which will worsen over the next five years. Winters of discontent on the way . . .
Michael Wickens: There is a trade-off between inflation due to higher taxes and energy evangelism and weak growth. So not much change expected.
Panicos Demetriades: According to the IMF’s chief economist “the global battle against inflation has largely been won”. I do not expect that the UK will be an exception to this overall trend. After all, with the UK being a relatively open economy, domestic inflation will largely reflect international trends, although the UK faces rising import prices from the EU due to Brexit-induced trade costs. Better relations with the EU going forward should therefore also help lower inflation pressures in the UK, all of which should enable the Bank of England to continue cutting interest rates.
It is noteworthy that at the time of writing this (12.12.2024), the Bank of England base rate is 1.75 per cent higher than that of the ECB, which I find remarkable, given the similarities between the two economies.
Evarist Stoja: Even though it looks like the battle against inflation has largely been won in the UK, this came at a massive cost, with steep increases in the base interest rate which remains high. The elevated interest rates will mitigate the inflation risk and while there might be blips in inflation, in particular the prices of some items in the inflation basket will remain stubbornly high, I do not anticipate a general UK inflation problem during 2025.
Stephen Millard: No. My sense is that inflation is now under control and will be around its target of 2 per cent by the end of 2025.
David Cobham: Not a major problem, no, but inflation could be nearer 3 per cent than 2 per cent.
Nicholas Barr: Other things equal, no substantial problem, but other things may well not be equal, in particular the extent to which the Trump administration does or does not follow through with its tariff proposals.
Andrew Oswald: Mildly.
Robert Wood: Yes, but lets keep the extent of the problem in context. There is decent evidence of structural changes in the UK economy that would make inflation more persistent for a given level of interest rates. Relatively resilient growth given the level of interest rates, along with rising house prices, suggests the neutral rate has risen to a 3 to 4 per cent range rather than the 2 per cent the Bank of England used to assume, or even the near 3 per cent it seems to factor into its forecasts. Inflation expectations are modestly elevated and seem more responsive to headline inflation than in the past, which is likely driving wage persistence. Meanwhile the NAIRU has probably risen.
Martin Weale: I think underlying measures of inflation will still be high. But I do not expect a problem with the headline figure, which I expect to be between 1 and 3 per cent p.a.
Tomasz Wieladek: No. The inflation risks have become symmetric. While services inflation remains above target and will probably remain that way for a while, core goods inflation could easily slip into deflation. With US tariffs on China, the excess spare capacity has to go somewhere. The UK government is the least likely to impose counter tariffs on other countries like China because it doesn’t compete in the same industries. This means that the UK economy will probably experience the full brunt of global goods deflation that additional Chinese spare capacity will bring.
The core goods deflation, UK services inflation could be as high as 4 per cent in 2025 and inflation would still be close to target. This is probably one of the most important trends for 2025 and a key distinguishing factor for the UK.
Matt Swannell: A significant portion of the somewhat easier work on inflation has already been done, as supply chains have stabilised and goods price inflation has decreased. From here, the UK must make progress on services inflation, which is stickier. However, with the demand for workers back to more normal levels, wage pressures are likely to ease over 2025 on the back of less significant pay negotiations. Earnings growth will probably fall back to rates consistent with 2.0 per cent inflation around the end of 2025.
Michael Saunders: No. The recent inflation pick-up has largely faded already, with CPI inflation close to target now. The residual second-round effects on pay growth and services inflation are gradually declining, and both should be around a target-consistent pace by end-2025.
Andrew Wishart: With private sector pay settlements running at 4 per cent and the minimum wage being upped by almost 7 per cent in April, before you even consider the increase in employer national insurance contributions announced in the budget it is pretty clear that the UK will suffer from cost-push inflation in 2025. On average, the increase in NICs will raise firms labour costs by 2.4 per cent.
While the labour market is cooling, it will take time for average pay growth to come down when those staying in post are receiving sizeable pay rises. Alongside slim profit margins by historical standards and robust enough demand for firms to pass on much of the cost increase, we think that will push inflation back up to about 3 per cent at the end of 2025.
Alpesh Paleja: Depends what we mean by “problem”! We expect inflation to now remain above the Bank of England’s 2 per cent target throughout next year. This in part reflects some pass-through of higher employment costs, arising from measures announced in October’s Budget. While not ideal for consumers that have already been battered for a few years, inflation is still set to stay well below the double-digit highs reached in 2022.
The continued uncertainty for the inflation outlook remains domestic price pressures. A looser labour market and still-weak productivity should dampen pay awards, but both wage growth and services inflation have been very slow to come down so far. Should this continue, we might see even more persistence in headline inflation.
Ray Barrell: Inflation will probably not fall further in 2025, given strong demand, but is no great problem. If tariff wars weaken sterling we might see a temporary rise in inflation next year. The bank should act with caution.
Ethan Ilzetzki: This is very uncertain and will depend on global developments. My baseline scenario is that inflation will still be hovering above the Bank of England’s target, but I put about equal probability on a recurrence of inflation and a recurrence of the pre-Covid deflationary pressures.
Anonymous: No, inflation will approach target
Vicky Pryce: The UK doesn’t have an inflation problem now and unless there is another energy shock there shouldn’t be one by the end of 2025 either. The hawkish wording of some of the MPC members’ pronouncements make very little sense in that scenario.
Tony Yates: I don’t think we have an inflation problem now, so no. The choice to navigate the post Ukraine war and Covid period with high inflation was probably the right one, and inflation has been essentially tamed since then.
David Meenagh: No, I expect inflation to gradually decrease towards the 2 per cent target.
Kate Barker: Inflation may be a little above target but expect wage growth to ease though the year and would not say this is a problem.
Yael Selfin: At the moment we expect inflation to return back to the Bank of England’s 2 per cent target only by early 2027, due to higher business costs as a result of the Budget, weaker pound, and stronger public spending.
John Philpott: Cost push inflation, primarily associated with the impact of the autumn 2024 Budget, will ensure that inflation will end the year above the Bank of England’s 2 per cent CPI target rate. However, this will only be seen as a problem in terms of affecting the speed of monetary policy easing rather than preventing lower interest rates.
Andrew Mountford: The trend in CPI inflation excluding energy is clearly trending towards the target range — see the Bank of England’s Monetary Policy report. However, I sometimes think that you are asking for my own calculations and so I ran two models from Stock and Watson’s undergraduate textbook; a direct forecasting AR model and a dynamic factor model with four factors using 40 macroeconomic variables from the UK and US economies. These gives point estimates for the annual rate of inflation in Q4 2025 of 2.5 per cent and 3.6 per cent respectively. These simple models serve to show that the official forecasts are not inconsistent with the broad pattern of the data.
This recent downward trend in UK inflation is in large part due to the easing of external supply factors. Clearly another round of external supply shocks, eg wars, may cause inflation to rise again. How individual countries deal with external shocks does of course impact inflation. The UK inflation and its interest rates have been higher than in most other G7 countries — see e.g. OECD’s economic outlook — which perhaps indicates that we have not dealt with these shocks very well.
Francis Breedon: Yes, but almost resolved.
Lena Komileva: Inflation persistence is not fully reflected in the monetary policy stance and will probably continue to shape dynamics in labour and service price inflation over the next year.
Gerard Lyons: If inflation is in line with the target it will be because of very weak growth. The inflation problem in 2025 is whether the UK can enjoy solid growth alongside low inflation. I expect inflation to be low, but above the 2 per cent inflation target at the end of 2025 because of persistent service sector inflation. To avoid a future inflation problem necessitates a far better monetary policy. While interest rates can, and will fall, they need to settle at a much higher level than pre-pandemic.
Gary Styles: Yes. A combination of significantly higher wages, council tax, employment costs and imported costs will continue to put upward pressure on price growth.
Bart van Ark: Inflation should stabilise between 2 and 3 per cent, assuming no major geopolitical events occur (which is a significant “if”). However, the bigger issue is that price levels are still perceived as high, even after a correction in real wages, until consumers have fully internalised these changes. Businesses are unlikely to absorb additional price pressures.
Ricardo Reis: No. It barely has an inflation problem right now, as 2025 starts. If the Bank continues committed to its 2 per cent mandate it should and will deliver.
Jumana Saleheen: UK inflation has fallen back sharply and is within touching distance of the 2 per cent inflation target. We expect headline inflation to end next year at 2.2 per cent and core inflation to end next year at 2.4 per cent. Recent inflation data has been encouraging, with private sector wage growth and services inflation now comfortably below the Bank of England’s August projections. With growth around trend and inflation close to target, we expect the Bank of England to adopt a more gradual pace of easing in 2025, with a quarterly cadence of cuts in 2025. We expect the bank rate to reach 3.75 per cent by the end of next year, one percentage point lower than its current level.
Jessica Hinds: We think that headline inflation in the UK will be above the 2 per cent target by the end of 2025 on the back of a renewed rise in core goods inflation and services inflation only falling slowly. Measures in the autumn Budget will also be adding to inflationary pressure next year. But we do expect progress in 2026 back towards the 2 per cent target as wage growth eases more meaningfully.
Paul De Grauwe: I think that at the end of 2025 inflation will not be a major problem any more for the UK.
Kallum Pickering: No — expect inflation to remain sufficiently close to the Bank of England’s 2 per cent target for policymakers to claim victory over the recent bout of inflation. However, the open and import-dependent UK will remain vulnerable to renewed bouts of inflation coming from global structural shifts — including labour shortages as populations age and rising trade frictions — as well as potential bouts of energy and commodity market disruptions in a world that has turned more multipolar and geopolitically unstable. If policymakers take the necessary measures to sizeably increase domestic energy production, the UK can create insurance against future gyrations in global energy prices — while it would not prevent bouts of inflation, it could mitigate damaging negative terms of trade shocks like the one the UK suffered in 2022 and 2023.
Phil Thornton: Inflation will be higher but that does not mean the UK has an inflation ‘problem’. The cost of living will rise mainly on the back of higher utility prices, but it will probably fall back towards the end of the year
Jonathan Haskel: The November Bank of England MPR forecasted inflation of 2.2 per cent in Q4 2026 (Q4 on Q4 a year ago), as energy prices fall out of the annual comparison and so inflation more reflects domestic underlying factors. I regard risks on the upside, due more of a possible deterioration in the UK labour market than Bank of England thinks. This in turn reflects the longer term effects of the pandemic and Brexit in reducing labour supply.
Andrew Simms: It requires endless repeating that the UK’s 2 per cent inflation target is plucked from the air and has no clear rationale or economic justification. People on low incomes in the UK will still have a problem with the prices of food, energy and housing at the end of 2025. They will best be helped not by pursuing a blanket approach to growth, the benefits of which tend mostly to be captured by the relatively wealthy, but variously by: regulating speculation in housing, boosting social building and using rent controls; rebuilding EU links; and significant public green investment to boost training, employment and lower energy costs with measures such as a mass, nationwide homes energy retrofit programme.
Bill Papadakis: Yes, but not a very prominent one — inflation will be still above target but a sustained path to target will be visible
Ian Plenderleith: Not a problem, but continuing moderately strong inflationary pressures, principally from labour costs, necessitating continuing moderately restrictive monetary stance.
Michael Taylor: Yes, I think inflation will be over 3 per cent late next year. Both the direct (extra public spending) and indirect (pass-through of higher employer NICs) are inflationary against a backdrop of resilient consumer demand. Service sector inflation will not fall to the 3.5 per cent rate consistent with the 2 per cent inflation target, as wages growth proves sticky, boosted partly by the rise in the NLW.
Matt Whittaker: No. There’s certainly the prospect for Trump tariffs and energy prices to generate new global inflationary pressures, but such effects may take longer to flow through to the inflation measures. And they will probably be offset to some degree by a continued cooling in the labour market.
Victoria Clarke: We are expecting an uncomfortable picture for UK inflation over the first nine months of the year, with inflation running closer to 3 per cent than to the Bank of England’s 2 per cent goal. Services inflation will be slow to fall initially, with the Budget’s payroll (NICs) tax rise reinforcing labour cost pressures for firms, and delaying its descent. Although goods inflation should remain low, this will mean that CPI’s path back down (sustainably) to 2 per cent is a slow one, again. But we expect progress to be clearer in the final quarter of the year, with a softening labour market slowly tempering labour cost growth. We still expect above target CPI as 2025 closes, but with more reassurance that inflation is on its way back to (sticking at) 2 per cent.
Suren Thiru: Inflation this year is likely to be a tale of two halves. It will be stronger in the near term as repercussions from elevated energy costs, the autumn budget and public sectors pay deals pushes the headline rate to around 3 per cent by the middle of 2025. Inflation should then drift gradually lower as the downward pressure on services inflation from slowing wage growth, amid a weakening labour market, helps moderate underlying price pressures.
Against this backdrop, rate-setters are likely to take baby steps in cutting UK interest rates, particularly given growing domestic and international inflation risks, including possible new US tariffs.
Simon Wells and Liz Martins: It’s certainly a risk. The rise in the minimum wage and other rises in labour costs could mean inflation lingers if businesses are able to pass these costs on via higher prices. But we expect the two main drivers of inflation — energy prices and a jobs boom — to have both washed out by the end of the year. We forecast the headline inflation rate to be only slightly above the Bank of England’s target by year end.
Susannah Streeter: Inflation is set to stay sticky through 2025, and is unlikely to reach the target. There may well be price rises due to the effect of the increase in national insurance contributions from employers being passed on. The energy price cap is also expected to rise slightly. Although the UK is expected to escape tariff wars given that much of trade with the US is with services, which should be exempt from tariffs, the stronger dollar could import inflation a little. This could be offset by other global manufacturers lowering prices to ensure they stay competitive.
Gaurav Ganguly: No.
David Bell: I expect that inflation in the UK will still be above 2 per cent at the end of 2025. Increased taxation and negative business expectations will reduce demand. But the existing momentum of wage growth and the likelihood of further shocks to energy prices suggest, on balance, an outcome above the Bank of England’s target rate.
Noble Francis: Now that the energy and food price spikes have fed out of the annual figures, inflation is likely to be less of an issue than in 2022 and 2023. However, the increase in the national living wage and the employer’s national insurance contributions, combined with the falling thresholds, are likely to increase costs for businesses across the economy and this is likely to mean that inflation remains slightly higher than we were forecasting six months ago. However, although, CPI inflation is expected to average 2.5 per cent in 2025 and remain above the Bank of England’s target, this is not to the extent that it would require policy action from the bank.
Barret Kupelian: Services inflation is likely to continue to remain high as the workforce grapples with skills mismatches, trade friction and uncertainty about the global economic backdrop.
John Muellbauer: Probably not, in a worse international economic growth context, unless there is a run on the currency.
James Smith: Headline inflation is likely to inch closer to 3 per cent in the short term, but in general the story should improve next year. Services inflation — the key metric for the Bank of England — should come lower beyond the winter, particularly once volatile items are excluded. Our favoured measure of core services inflation has fallen further than the headline numbers, and could be around 3 per cent by April (from 4.5 per cent in October). If we’re right, that should herald faster Bank of England cuts than markets are currently pricing.
Anonymous: I expect inflation to continue between 2 and 4 per cent unless there are new global shocks.
Dhaval Joshi: No and yes. No, in the sense that Inflation will be in low single digits. Yes, in the sense that it will not be securely back at the Bank of England’s 2 per cent target.
Thomas Pugh: No. Even though headline inflation will rebound from less than 2 per cent in October to little above 3 per cent next year, we still expect inflation to start trending down again towards the end of 2025, so this is not a return to the ‘stagflation’ of recent years. Inflation is likely to back around the 2 per cent target by 2026.
Of course, there are plenty of risks. First, geopolitical tensions, either in Ukraine or the Middle East, risk sending energy prices soaring again. However, the risk here is double-sided. Global oil markets are oversupplied, so if there is an easing of tensions, then we’re likely to see energy prices fall and inflation rise by less than expected.
Second, there is a great deal of uncertainty around how firms will deal with the increase in costs imposed on them by the budget. If firms choose to pass these costs on to customers to a larger extent than expected, inflation may rise significantly above 3 per cent.
Third, tariffs, combined with an expansionary fiscal policy in the US, risk pushing up inflation globally, but the UK would be vulnerable to a stronger dollar, which now seems a very likely outcome.
Colin Ellis: Not really, though I am sure we will probably still be talking about inflation a lot. But it you look at the history of inflation since the Second World War — or even just the past three years, really — I am not sure I’d describe something like 2.5 per cent vs a target of 2 per cent as a ‘problem’. That would be a relatively small deviation, really.
Philip Shaw: No, although we seem set for a period of slightly higher inflation through the first months of next year it should subside given an increasingly looser labour market and the existing downward momentum in pay settlements. Our base case is that CPI inflation should only be modestly above the 2 per cent target by the end of 2025 as services inflation subsides and despite a less helpful contribution from energy. That said, achieving 2 per cent inflation involves greater vigilance than it did in the past and any increases in UK tariffs would make the task that much more difficult.
Jagjit Chadha: I expect inflation to be around 2 per cent at the end of 2025, so no ongoing problem.
Neil Blake: no. inflation will still be above target but will be falling towards 2 per cent.
Jonathan Portes: I don’t think the UK has an “inflation problem” now, in that inflation should be well down the list of policymakers’ concerns; to the extent that inflation is higher than desirable in some service sectors, that reflects structural/supply-side issues. I don’t think that will change in 2025 but almost by definition shocks that generate unexpected inflation are unexpected!
Andrew Sentance: Yes, in that inflation likely to be higher than other G7 economies and above the 2 per cent target. That is what the OBR and Bank of England forecasts suggest, reflecting the fiscal boost to demand, rising business costs with higher national insurance payments plus high underlying inflation and pay increases.
Alfie Stirling: No. The level of (many) prices relative to incomes — particularly housing costs and energy — will still be too high, and one of the major challenges for government policy. But absent another external shock, the rate of inflation is unlikely to be a major issue.
Marchel Alexandrovich and David Owen: On the core measures, including services, inflation will still be seen as a problem. Wage inflation is unlikely to end 2025 at a level consistent, on a two to three year view, with the Bank of England’s inflation target, with the increase in the national living wage potentially having a significant impact on pay, and pay differentials, in some key sectors. Throw tariffs, an increased focus on net zero and repositioning what has become complicated supply chains, an ambitious housebuilding target all into the mix; and inflation in steady state is unlikely to settle down at 2 per cent. The increase in employers’ NI will also add to inflation pressures in 2025, as companies act to restore margins. More frequent and more extreme climate events and a higher carbon price may also add to inflation in 2025, and to the volatility of key components (including food prices) of the CPI. Will Rachel Reeves be tempted at some point to change the UK’s inflation target to CPIH (perhaps only in a year when house prices are underperforming)?
Trevor Williams: No. But then, I don’t think it has one now! It has a growth problem.
Morten O. Ravn: The inflation rate has fallen sharply since late 2022, but there are some signs that its decline has stalled. Nonetheless, save for increased geopolitical risks, the outlook would be for a steady decline in inflation during 2025. This is conditional, however, on public sector net borrowing coming down which, in turn, will depend on the growth performance of the UK economy. It remains, though, somewhat unlikely that inflation will return to its target at the end of 2025.
Nina Skero and Sam Miley: We expect some inflationary pressure to manifest in 2025. The main driver of changes in inflation will be energy prices, which will probably begin the year in deflationary territory before returning to growth. Meanwhile, there is still some embedded pressure in services. In the longer term, some of the policy changes to be introduced in 2025, including the increase in the national living wage and changes to employers’ NICs, are also likely to impact price growth.
George Buckley: No. We think price momentum will have fallen back to target-consistent monthly rates, though because of base effects we see the annual rate of inflation well above target by Q4 2025. But that should correct speedily in 2026, with primarily base effects to blame for its above-target level in 2025.
Bronwyn Curtis: External factors are likely to determine whether the UK has an inflation problem at the end of 2025. There are so many uncertainties like US tariff policies and we haven’t seen any fall out from the Middle East — yet. If nothing changes there will be a boost to inflation in 2025 from the Budget, but it should peak at around 3 per cent in Q1 and gradually decline towards the 2 per cent target during the year.
Lydia Prieg, head of economics, New Economics Foundation: UK inflation is unlikely to return to the 2 per cent target in 2025 due to rising energy bills and loosened fiscal policy in the October budget. Geopolitical tensions could also disrupt global supply chains and thus push up prices. The Bank of England should not overreact and keep rates too high for too long. High interest rates weren’t responsible for cutting inflation, which was largely determined by international factors outside the Bank’s control. They have however driven people into mortgage arrears and made it more expensive for our government and businesses to make vital investments. A more flexible approach to inflation targeting could be necessary to achieve a prudent balance between price stability and other economic objectives, including around growth and investment. The bank could also take inspiration from its counterparts in Japan and China by introducing a special lower interest rate for vital carbon busting investments that will keep our energy bills down in the future.
David Vines: Yes — although by then only a moderate one. The reason is that it is taking the labour market time to accept the reduction in real wages caused by the inflationary experience which we have lived through. In other countries real wages have been able to bounce back but the structural problems which I have described mean that it is more difficult for the UK.
Sonali Punhani: We still see risks of inflation persistence in the UK. The Budget would imply a boost to inflation in coming years- we expect inflation to rise to 2.6 per cent in 2025 and then fall to 2.1 per cent in 2026 (with energy base effects causing headline inflation to reach 2.9 per cent in Q3 2025). Headline inflation is expected to just about reach target in mid-2026. The factors from the Budget that add to inflation include stronger demand due to fiscal easing, pass-through of higher employer NICs to prices, 6.7 per cent rise in minimum wage in April 2025 and impact of various duties/policies (notable one being the introduction of VAT for private school fees in January 2025).
We expect domestic inflation to slow somewhat gradually in 2025, mainly from Q2 onwards driven by services (services inflation expected at 3.8 per cent in Q4 2025), reflecting easing labour market and inflation expectations. The key for the inflation outlook would be pay awards for 2025. Risks to inflation remain on the upside, given the fiscal boost to growth or potential structural changes (higher NAIRU, greater mismatch, weak labour supply due to increased long term illness, potentially Brexit) keeping domestic inflation elevated.
Jack Meaning: Although it will remain high in the first half of the year, we expect headline inflation to be easing back towards target as the year progresses, finishing 2025 at just above 2 per cent (and falling just below in 2026). Core inflation will probably take a little longer to come down, but should still end the year around 2.4 per cent.
John Llewellyn: Yes. Once inflation becomes entrenched, even at a historically fairly low rate, it becomes near impossible to bring down back to 2 per cent without the ‘help’ of a recession. Already this problem is being seen in the services sector, where the ‘last mile’ of disinflation is proving elusive. The one thing that could bring inflation down would be a constructive (downward) shift of, say, 1 per cent in the terms of trade, but that looks unlikely.
Paul Hollingsworth and Dani Stoilova: Yes. A combination of looser fiscal policy, structural labour supply challenges and a likely increase in US protectionist trade policy, will keep inflation sticky in the UK for the foreseeable future. Indeed, we see inflation materially above the 2 per cent target throughout 2025.
Will Rachel Reeves neat to raise taxes again in 2025? Or before the end of the current parliament?
Philip Booth: Before the end of the current parliament because of demographic pressures, unless there is a sustained reform of government services and welfare provision.
Andrew Smithers: Before the end of the current parliament.
Costas Milas: Dan Brown, the best-selling author, wrote in The Da Vinci Code: ‘Today is today. But there are many tomorrows’.
Reeves does not intend to raise taxes again in 2025. To tackle fiscal imbalances she will have (or be forced) to raise taxes at some stage. If, today, we are faced with many tomorrows, think how many tomorrows are in front of us until the end of the current parliament!
Maxime Darmet: Yes, but probably in 2026. We think growth will undershoot the government and the OBR’s forecasts. Therefore, tax receipts will probably undershoot as well. The government will have to find new sources of revenues, or back down on its ambitious investment plans.
Joseph Pearlman: I am hopeful that by making the NHS more effective by introducing more preventive measures and by generally improving efficiency, we will see more people in employment (so greater tax revenue) and less cost. Government investment in engineering and biotechnology is likely to draw in additional investment and increased employment opportunities.
Tim Leunig: Under inherited plans, child poverty is on course to rise sharply this parliament. I cannot see how Labour can fight the next election in those circumstances — their members will not campaign with the necessary vigour. According to the Resolution Foundation the government needs about £3.6bn to cover this bill. More generally, as Paul Johnson keeps saying, the medium term fiscal plans are implausible. So either they have to raise taxes, or cut spending on something. The latter is hard, so the former more likely. And if t’were done, best t’were done quickly.
Anonymous: Probably not in 2025 but almost surely so before the end of the parliament, since the current public spending envelope still implies unrealistically tight spending limits for unprotected departments in the later years of the parliament.
Linda Yueh: Tax rises are likely before the end of the current parliament. The chancellor is aiming for one significant fiscal event a year, so having just had a Budget in the autumn of 2024 with some of its measures coming into effect in April 2025, there may not be another significant series of tax increases in 2025. However, with her fiscal rule of funding current spending with tax increases or spending cuts, a tax rise in 2025 can’t be ruled out.
Anna Titareva: We see the risk to our 2025 GDP growth forecast (1.5 per cent) as skewed to the downside amid geopolitical uncertainty, the uncertain outlook for external demand and the spending behaviour of the UK households in the current environment. This, in turn, implies some risk in terms of reaching the targets for the additional tax revenues.
Chris Martin: Probably not in 2025. But almost certainly by the end of the parliament. The standstill in government spending that is due in a couple of years is not politically credible. The government’s planned investments are essential and welcome. But they are unlikely to boos growth in the short term. So some form of tax increase is looking inevitable.
Diane Coyle: Yes — before the end of the parliament, if she wants to remotely meet voters’ expectations. Restoring trend growth will require much more investment in public services and infrastructure than she has budgeted for.
Anonymous: Not in 2025, less than a 30 per cent before the end of the parliament.
Howard Davies: She might conceivably need to tinker a bit soon, but to do so in 2025 would involve an indigestible slice of humble pie. She should be raising taxes on fuel before the end of the parliament, and reforming property taxation, which will involve rises for many.
Sanjay Raja: The big focus now for investors will be in how the multiyear spending review pans out. Given the big shift down in spending growth beyond 2025/26, chancellor Reeves will face yet another difficult set of trade-offs — especially given that the government has ruled out any tax changes outside of budgets. The delay in the multiyear spending review to June will give the chancellor some space in the Spring Statement. Indeed, the OBR won’t have to account for any big spending bumps, leaving the public finances projections broadly as is (relative to the autumn Budget). Given our growth outlook and bank rate expectations, it’s likely that borrowing ends up tracking a little above the OBR’s projections when the chancellor sets out her second full budget come autumn 2025.
There is a decent chance that the 2025 autumn Budget could reveal yet another fiscal ‘black hole’ that may require a combination of modest tax rises or additional borrowing.
David Page: For 2025, we do not expect the chancellor to raise taxes again (barring micro fine-tuning adjustment in duties et al). Longer-term, the chancellor looks likely to face the now usual unenviable choice: we forecast growth to fall short of OBR forecasts over the coming two years, which would see government deficits come in above current forecasts. This shortfall will need to be addressed with a combination of higher borrowing, reduced spending and/or higher taxes. It is likely that higher taxes will form some part of that solution beyond 2025. However, we would not expect those to be on the scale of those implemented to address the inherited shortfall this year, nor for increases in tax to necessarily form the lion-share of any future adjustment. In part, this is because we believe the political cycle will be less favourable for sharp tax increases in future years.
Anonymous: Yes, before the end of this parliament, but possibly not in 2025.
Paul Dales: It will come down to a choice of whether restraining government spending or raising taxes is the most damaging politically. The pressure to increase government spending and public sector pay will only grow. And given that we are getting close to the limits of how much extra public borrowing the financial markets can tolerate, any further rises in government spending will need to be funded by higher taxes. I’d be surprised if Reeves doesn’t raise taxes further.
Fhaheen Khan: It is currently not possible to say whether further tax rises will be needed before the end of the term. If any further tax rises are expected, they will happen sooner rather than later to avoid political dissent before the next election.
The likelihood of new taxes will depend on several factors, such as the effectiveness of incoming tax increases, including Employer NICs, inheritance tax and others to fill the Treasury’s previously described black hole. There is a finer risk at play here which is, if businesses respond to their higher tax burden by limiting wage increases or cutting staff then the financial intake of the big taxes, including income tax, and VAT may be lower. This will create a fiscal conundrum for the government if economic growth does not improve sufficiently before the end the current term.
Neville Hill: I suspect the chancellor will not raise taxes again. The last Budget did deliver a fairly steep fiscal tightening that will probably mean little or no discretionary action in 2025. Although there is a clear risk that growth will be too weak or rates will be too high for the fiscal rules to be met I suspect any further tightening will take the form of spending cuts.
Andrew Goodwin: I think there’s a good chance the chancellor will need to raise taxes in 2025 because she’s left so little headroom against the fiscal rules and there are so many ways that the headroom could be wiped out. Turning tight spending totals into department-by-department plans will be very challenging. Failing to restart the indexation of fuel duty would wipe out half of the headroom. The OBR’s medium-term growth forecasts are above consensus and vulnerable to being revised down at some point, if growth continues to disappoint. And there’s always the risk that market pricing moves against the government. The UK’s debt dynamics are among the worst of the advanced economies, and fiscal sustainability concerns aren’t going to go away.
Nick Bosanquet: Not in 2025 but pressure likely from 2026-7, from rising costs in public sector programmes. The Labour government is heading for the same type of mid term crisis as in 1947, 1967, 1976 and 2008. This time there is no Marshall Plan or IMF mission in sight, Pressure will be strong from the bond market. The budget has given the green light to large, sustained increases in public spending (£70bn a year) . . . but this will lead to further pressures in the future. Not Singapore-on-Thames but Buenos Aires (as it was) on Thames. There will have to be a package of cuts to satisfy the bond market.
Michael Wickens: Yes, without doubt. This is an economically illiterate government that is spending more while it discourages growth in the private sector and hence inhibits tax revenues from economic activity.
Panicos Demetriades: I think this very much depends on whether the government’s economic policies succeed in increasing productivity, investment and growth; if they do, there will be less pressure on the public finances. I am cautiously optimistic that this will not be necessary since I now see better management of the economy by the government than in the last decade, starting with the Brexit referendum which created huge economic and political uncertainty. A reduction in uncertainty together with the determination to minimise the costs of Brexit, which has been deleterious for the UK economy, is at the centre of what is needed for the UK economy to bounce back.
Evarist Stoja: Chancellor Reeves may well need to but I do not think she will raise taxes during 2025. She gave assurances to that effect and although the PM tried to leave the door ajar to new tax raises, politically it would be very expensive for the Government. As for tax rises by the end of the current parliament, it is too early to say. A lot would depend on what the last tax rises achieve.
Stephen Millard: The freezing of income tax allowances until 2028 acts as a tax rise anyway. Leaving that aside, if the chancellor is serious about sorting out public services and raising public investment, then my sense is that taxes need to rise further.
David Cobham: ‘Need to/have to’ are not very precise, and anyway it’s to an important extent a matter of choice. I doubt she will raise taxes again in 2025, but I would like to see the Labour party enter the next election with an upfront plan to increase the progressiveness and the extent of taxes, for the sake of improvements in public services. And we economists ought to do much more to emphasise the value of public services, as against those who think only tax cuts have value.
Nicholas Barr: Not in 2025, but at some stage during the current parliament.
Andrew Oswald: Absolutely, before the end of the parliament. 2025 less clear. It will depend partly upon the level of Putin aggression.
Robert Wood: Yes because Ms Reeves has left wafer-thin headroom against her fiscal rules and assumes tight spending plans beyond the next year. Funding more defence spending, for instance, will be tough, while market moves could easily use up half or more of the limited headroom.
Martin Weale: I think not in 2025 but probably yes before the end of the parliament.
Tomasz Wieladek: I think a cut to government spending is more likely to help balance the books in 2025. The chancellor’s headroom in the Budget was relatively small. A persistent rise in gilt yields could eliminate the available headroom. However, the most likely solution would be cut spending or even just slow down the pace of the spending that has been already announced.
Matt Swannell: The chancellor has left herself limited flexibility against her own fiscal rules following the autumn Budget, and may need to implement more tax rises in future years if the tax take disappoints or spending proves higher. Revenues from some of the Budget tax rises are highly uncertain and risk slipping. Meanwhile, current spending totals beyond 2025-26 imply real-terms cuts for some government departments.
At the same time, if the rise in market interest rates since the Budget was to be sustained, the government would already have less headroom against its fiscal targets.
Michael Saunders: No to 2025 and probably also a no for the rest of the current parliament. Of course, she may well (indeed, should) start indexing fuel duties in line with inflation. Moreover, there are useful tax reforms that could be made which might include raising some taxes to cut others. But Reeves probably will not need to raise the overall tax burden further.
Andrew Wishart: Although growth is likely to come in weaker than the OBR forecast over the next couple of years, the adverse impact on revenues should be offset by higher inflation than expected. That said, as the departmental spending plans are far from generous further ahead, I suspect that welfare savings will need to be found to avoid a further increase in taxes.
I suspect the chancellor will avoid raising taxes again in 2025. But unless the welfare bill can be reduced, as the fiscal target year will be just three years ahead from 2026, a further increase in taxes is likely to be necessary.
Ray Barrell: Any increase in taxes in 2025 are likely to be subtle, with ‘reform to the system of property taxation’ the most likely. That might be accompanied by ‘health related adjustments to tax rates’ such as tobacco, spirits and wine duties. In the longer term taxes will have to rise, as the golden rule is in no sense optimal. We need to stop borrowing from our children. This should happen before the end of the parliament. We may even see the reintroduction of an unearned income surcharge in income taxes.
Ethan Ilzetzki: There will be no need to raise taxes in 2025. It would be a policy mistake to do so. I cannot predict what the political pressures will be, but there were certainly be no economic need to do so.
Anonymous: Not in 2025 but it could well be that she needs to do so in the coming years. Pressure on public services will remain high.
Vicky Pryce: Not in 2025 as politically too difficult to do after businesses’ negative reaction but later yes. The reason is that planned spending in later years is too low to be sustainable for a number of departments if public services — and defence capabilities — are to be improved as promised. In addition it is very possible that the revenue that is assumed to be raised by the announced tax measures and the cost saving assumptions incorporated in the overall budget figures are unlikely to materialise in full. More tax increases will therefore be necessary, particularly if economic growth proves anaemic.
Tony Yates: Labour has caught itself between populist echoes of Sunak’s unwise tax cuts pre-election, and promises of delivery on public services, aggravated by feeling it has to be tough on immigration [one obvious way to enlarge the tax base in the short to medium term]. The spending review is going to make it harder to maintain the Labour versions of the Tory ‘fiction’ [OBR’s term, I think] of real spending cuts for parts of the public sector, and therefore I think ultimately taxes are going to raise further over and above what is already promised.
David Meenagh: I don’t think she will need to, but it doesn’t mean she won’t.
Kate Barker: Would expect any tax rises to be modest and targeted at desired behaviour change. Or perhaps this is just my optimism that a chancellor will raise fuel duty.
Yael Selfin: The potential drop in funding by 2026/27 may require a more significant reorganisation of public service provision or additional revenue.
John Philpott: The chancellor won’t need to raise taxes in 2025, which is good news for her because to do so would spell political suicide. But its touch and go whether she will have to raise the tax burden by 2029 because the outlook for sustained economic growth is highly uncertain, to say the least. Higher taxes may well be a fiscal necessity before the next general election, and thus still spell political suicide.
Andrew Mountford: Events such as military build ups, potential wars, supply shocks, etc can derail any fiscal plan but absent any of these, I’d be very surprised if taxes were raised again in 2025.
Over the longer term, It depends how much the government intends to invest. The Productivity Institute blames chronic and broad-based under-investment in the UK economy. I think there is good evidence that the government should be investing a lot more than it is planning to in the basic productivity of the economy eg skills, training, and efficient infrastructures for transport, energy, trading and law. It also needs to spend more on defence. As I argue every year, the best way to raise funds for this would be via an annual tax on all land that is only to be paid when the land is sold.
Francis Breedon: Not in 2025 and maybe not in this parliament as freezing tax thresholds will deliver significant revenue growth.
Lena Komileva: UK fiscal space is challenged by a difficult domestic private sector growth backdrop, a large welfare bill and a structural reset in international government bond market term premia, reflecting rising government debt levels and reduced central bank financing. The chancellor has politically limited further room to raise taxes which will remain a point of focus during the course of this parliament as long as government spending demands and debt borrowing costs remain elevated.
Gerard Lyons: The chancellor will only not have to raise taxes again before the end of this parliament if she is lucky with strong global growth — which would raise UK growth. Or, she would need to curb public spending with notable reform or austerity, neither of which is likely. Meanwhile, in 2025 she may be able to avoid raising taxes as a higher tax take is already factored into present fiscal plans and borrowing could increase. The pressure on the public finances will be intense because of modest economic growth, high borrowing costs and upward pressure on public spending following the comprehensive spending review, plus increased demands on defence spending. The focus of financial markets has moved from a focus on inflation in recent years, to a focus on growth now, and in coming years it will move to a focus on debt. Thus, the pressure on the chancellor to keep finances under control is likely to intensify.
Gary Styles: Yes. The new government has over estimated the strength of the UK economy and its ability to generate adequate tax revenues. Economic growth and productivity remain poor and this will undermine the public finances for the medium term.
Bart van Ark: it’s unlikely in 2025, as the substantial tax hikes from the October budget provide some breathing room. Later in the parliament, any tax increases will depend on whether or not revenues increase on the back of economic growth.
Ricardo Reis: The forecasted public deficit is large. So, it relies on bondholders continuing to lend to the government at moderate to low interest rates. This leaves the country exposed to sovereign-debt confidence shocks, perhaps motivated by financial crises elsewhere. Bar those, there is a large amount in the budget devoted to public investment projects that have not been announced’; these could always be cancelled or postponed if there is a crisis, so that raising taxes is not needed.
Jumana Saleheen: There is a risk that taxes may have to rise in 2025 and beyond. There is little fiscal headroom in the current OBR projections of the public finances. Should the macro-outlook end up weaker than expected due to unforeseen shocks, Rachel Reeves may have to cut spending or increase taxes to meet her new fiscal rules.
There is one particular concern that economists have with respect to the how the government’s recent hike in employers’ national insurance contributions will play out. The Vanguard view is that the OBR estimate of the tax revenue that will be raises from NICs is likely an overestimate. We expect more of this rise to feed through to employees, through lower wages and reduced hiring. Therefore, we see a risk that other tax hikes will be necessary to fund the gap created by this over estimation.
As with any forecast, the uncertainty around the projections grows the further into the future one ventures. That is because the probability of unforeseen shocks rise. The OBR has shown that the outlook for productivity growth is the most important and uncertain forecast judgment. Given that economic growth is one of Rachel Reeves’ priorities, things could equally turn out in her favour.
Paul De Grauwe: I doubt that she will raise taxes again in 2025. It is more likely that she will have to do this before the end of the current parliament if she is serious to keep the budgetary deficit under control.
Kallum Pickering: Reeves’ main task in 2025 is to regain control of the pro-growth narrative upon which she successfully campaigned and won the election with Labour in July 2024. With this in mind, Reeves will probably try to do her utmost to avoid further raising taxes in 2025 — especially as the increase in employer national insurance at the 30 October Budget seems to have soured the mood. However, the government has not left itself much headroom with regards to its own self-imposed fiscal targets and has made itself a hostage to fortune in 2025 and for the remainder of the parliament. If tax revenues surprise to the downside or in case borrowing costs spike (for whatever reason), Reeves may need to make the difficult choice of raising taxes or cutting planned spending.
Phil Thornton: The chancellor may want to rises taxes again but her own promise not to that impact on the economy were she to do so will prevent that.
Jonathan Haskel: I think she will have raise them again in the current parliament. First, unless health service productivity picks up, we will get little extra actual delivery from the extra spending. Second, we will very likely have to spend more on defence. This will all take time to play out, which would make a rise next year unlikely. But as I understand the data, most chancellors get the pain over early in parliament, so on balance I think it likely she will have to raise.
Andrew Simms: Given the government’s general cautiousness significant new tax rises during 2025 seem unlikely, but more probably over the course of the parliament. But, early in a term and with a huge majority, now would be the moment to correct some major oversights to tax what we want less of, like pollution, and invest in what we want more of, like clean air technologies. While the cost of cleaner alternatives like public transport are allowed to rise, the astonishing pollution subsidy of Rachel Reeves choosing to continue the freeze on fuel duty, in place since 2011, is not only bad for human health and efficient infrastructure, according to the Office for Budget Responsibility by the end of the next financial year it will have landed the Treasury a massive £100bn cumulative bill in lost public income. With climate breakdown gathering ever more storm force, it seems not enough that self-destructive high-carbon options and lifestyles are aggressively advertised, as tobacco once was, but they come with a hefty tax break.
Ian Plenderleith: Yes, before the end of current parliament.
Michael Taylor: Yes she will — probably not in 2025 as public spending is set to increase next year and tax revenues will hold up. But after 2026 the envelope for public spending tightens significantly and non-protected areas such as transport and justice would probably face real cuts unless the spending plans were changed — funded with higher taxes. This scenario looks inevitable. But it may be another chancellor, not Rachel Reeves, that gets the job of raising taxes.
Matt Whittaker: Not in 2025, but quite possibly before the end of the parliament. If nothing else, tax policy should necessarily evolve over time in response to changing circumstances and opportunities. Ruling out tax rises over a fixed period is therefore a dangerous path to take.
Victoria Clarke: There is a reasonable chance that the fiscal plans laid out in the October 2024 Budget require an adjustment before the end of the parliament, though not necessarily so in 2025, given that there may be delays in implementing some of the capex plans. Our expectation for future years reflects the particular risk that growth underperforms the OBR’s upbeat expectations, but also that inflation runs hotter than forecasts and/or interest rates do not fall as fast as underpinning assumptions suggest. This implies the chance of further fiscal adjustment, if they wish to keep the fiscal plans broadly intact and adhere to the chancellor’s fiscal rules, including moving the current budget into balance, so day-to-day spending is met by revenues, in 2029-30.
There are limited tax-raising levers, after manifesto pledges ruled out the big tax-raising routes. We expect the spending review to be a tough process and we think it will be harder to go further and find even more savings in already tight plans, than are currently being worked on. So, we suspect that preparations for possible tax rises within the constraints above, things like raising duty further or more tax threshold freezes, which skirt around the manifesto pledges, will find their way back on to the Government’s to-do list before too long.
Suren Thiru: With the chancellor relying on her autumn budget tax rises to stabilise the public finances from April 2025 onwards, this will probably stiffen her resolve against calls for her to reverse course on her tax decisions and leaves the door open for further rises before the end of this parliament if growth is more muted than currently expected.
Simon Wells and Liz Martins: The chancellor was boxed in by her own pledges and they will continue to limit the government’s options throughout this parliament. The wafer-thin margin of headroom in the OBR’s forecasts suggests further tax rises are a real risk, given the likely difficulty in meeting the overall spending envelope. History suggests that taxes are more likely to go up shortly after an election and then down just before one. So as time goes on, the tough spending decisions will become even tougher.
Susannah Streeter: It’s likely that some form of extra tax raising will come in next year, but it will be minimal compared to the latest Budget. It will depend on growth and tax receipts through 2025.
Gaurav Ganguly: Yes.
David Bell: I sincerely hope not. However, it seems that she is walking a tightrope in counting on a significant improvement in growth to make her fiscal plans add up. Should these not materialise, I do not think further tax rises can be ruled out.
Noble Francis: If the chancellor intends to stick to the fiscal rules, then she is likely to need to either raise taxes once again or reduce the extent of the expansion in public sector spending, given that private sector growth, and consequently, tax revenue in 2025 and 2026, is unlikely to be as high as the Office for Budget Responsibility (OBR) expected alongside the autumn Budget.
Barret Kupelian: If there is a further deterioration in the economic environment I suspect the first point of call will be to water down fiscal rules even more and reign back government spending. Raising taxes will be the option of last resort and is unlikely to be exercised as policy tool given what we saw in October 2024.
John Muellbauer: Tax reform to raise taxes on those with the broadest shoulders such as land and property owners takes time and the sooner it starts, the better. A simple start would be a revaluation of the one million homes in bands G and H of council tax and a proportional tax rate of, say, 0.5 per cent. Broadening the tax base to include high value agricultural and forest land and unbuilt land with planning permission is another, complementary direction to go in.
James Smith: It’s inevitable. There are several ways further tax hikes could be needed, given the low amount of headroom currently available. Growth is likely to disappoint. And spending, beyond the next fiscal year, is expected to increase by less than 1 per cent per capita per year in real terms, which looks highly unrealistic given the multitude of challenges facing the public sector. Further departmental spending top-ups, akin to what we saw in November, are likely. Unlike the last Conservative government, which was able to reap the benefit of lower market rates, BOE cut expectations and thus lower debt interest forecasts, the Treasury is unlikely to be gifted by a similar windfall next year. We think gilt yields will end the year not far below where they are now, above 4 per cent. Finally, much of the low hanging fruit the Treasury was able to pick in October can’t readily be done again. Further tax hikes are likely, and we wouldn’t be surprised if these come via further hikes in employer national insurance.
Anonymous: Yes and yes. Her first Budget did not put the public finances on a sustainable path. She raised borrowing close to her new limits but did not raise taxes enough to fund the services she is committed to beyond 2025/26. After extra funding this year and next her plans allow growth of slightly over 1 per cent a year. That is not enough to fund the NHS, education and a step change in defence spending and to rest unless she cuts the other services back again. I don’t think that is credible.
Dhaval Joshi: Yes, in 2025 if Labour wants to deliver on its spending promises without blowing up the fiscal deficit.
Thomas Pugh: Rachel Reeves left herself with the smallest sliver of headroom against her fiscal targets in the October budget, we give it a 50/50 chance that she will need to raise taxes further to reduce her spending commitments.
Colin Ellis: I suspect not in 2025. If a negative shock hits that requires some form of public sector money, I think markets will be relatively forgiving, unless it’s a self-inflicted wound. Whether taxes will need to rise before the end of the current parliament will depend on whether growth kicks in, and how close Reeves is prepared to sail to her new rules. She will do whatever she can to avoid raising taxes, even if that means real terms cuts for swaths of public spending.
Philip Shaw: Probably not. The fiscal stance seems sufficiently ingrained for the coming financial year and given how October’s Budget went down like a lead balloon, raising taxes again next year would be politically toxic and therefore a last resort. Another point is that meeting the fiscal rules is highly dependent on GDP growth, not just because of the obvious cyclicality of tax revenue and expenditure, but also because the government’s investment (or debt) rule is expressed a proportion of GDP. Further out however, increases in day-to-day spending totals are relatively ungenerous in real terms from 2026/27 onwards and the danger is that the government is faced with no choice but to fund additional spending via raising taxes. The chancellor is certainly taking a gamble that her fiscal sums work out.
Jagjit Chadha: Taxes need to rise to meet the huge gap, some 7 per cent, between total managed expenditure and revenues. There is no alternative.
Neil Blake: Possibly, if the economy fails to grow rapidly enough and/or costs can’t be contained
Jonathan Portes: No. If short-term economic prospects worsen, raising taxes would be precisely the wrong response. And if they are as expected or slightly better, a period of stability in the overall fiscal policy stance would be welcome. That said, there is a strong case for pro-growth tax reform in several areas (income tax, council tax, VAT) and that would be the right place to start.
Andrew Sentance: Not in 2025 but she may have to do so later in the parliament if public sector productivity growth remains so weak and public service reforms are not carried through — particularly in the NHS.
Alfie Stirling: Yes. Age, population and inflation adjusted spending on many public services is still set to decline through the course of the parliament, and the quality of those public services are set to deteriorate with it. Whether it comes in 2025 or after, the political pressure for further tax rises this parliament is likely to be significant.
Marchel Alexandrovich and David Owen: Logic would dictate that tax rises are much more likely to be front-end loaded towards the start of a five- year parliament, so yes tax rises of some form are certainly very likely — much though will depend on the upcoming spending review (late spring 2025), and the OBR’s assessment of the government’s fiscal space, when set against its targets. But the general tilt will continue to be towards increased public spending (including public sector net investment), and higher taxes. The key will be how Rachel Reeve’s addresses some of the key issues facing the UK’s public finances, in the long term. As the OBR has highlighted, this includes climate change, as well as pressures for additional healthcare provision. Hard decisions will need to be made. Tax cuts before the next election will not be needed for Labour’s re-election chances, if the UK economy clearly seems to be heading in the right direction, with productivity and long-term growth trends improving.
Trevor Williams: No, there is no need for any other rises, not least they will be counterproductive. Financial markets will not fund another one outside of a crisis. But one is not required anyway.
Morten O. Ravn: If the growth performance of the UK does not improve, it is not unlikely that a further attempt will have to be made at raising tax revenues through increasing taxes. It is hard to see hard reasons for why UK will not pick up, but it is also hard to see strong signs of an improvement in UK economic performance. The government should have a hard think about whether there are options open for a non-fiscal stimulus of the UK economy such as considering its trading relationships with close partners.
Nina Skero and Sam Miley: One factor which suggests the need to raise taxes further is that we expect growth to be weaker than the OBR. As such, revenues from activity would be expected to be weaker, so there would be a gap to fill. This in itself could further hamper growth prospects, however.
George Buckley: I think raising taxes in 2025 is something the chancellor would be keen to avoid, bearing in mind the backlash to the rise in employer taxes in 2024. One the most significant risks that taxes have to rise again would be if we are right on growth, and that the OBR proves too optimistic. In which case we suspect the chancellor would prefer to raise taxes than make difficult spending cuts.
Bronwyn Curtis: She inherited a difficult financial situation, but raising taxes on the working population and employers dampens confidence and will hurt growth. The UK needs growth to get tax revenues coming in and so I think she will need to raise taxes again in 2025.
Lydia Prieg: The spending announced in the October budget was front-loaded, so large additional tax rises are unlikely in 2025. The spending envelopes for later in the current parliament, however, look unrealistically small if Labour is to avoid further cuts to ‘unprotected’ government services. While the last Budget was a bold step towards investment in infrastructure, the chancellor will need to further support day-to-day spending on people and public services, and this should be funded through taxation. The chancellor should be upfront with the public — we are kidding ourselves if we believe that the UK, with its ageing population, can maintain standards of living, let alone boost them without large increases to government spending. Sensible options for additional revenue raising include removing the national insurance exemption for investment and pension incomes and increasing the extraordinarily low high-pay national insurance rate.
David Vines: Not in 2025. There is still enough fiscal space to ride this out on a temporary basis. But quite possibly taxes will need to rise again by the end of parliament.
Sonali Punhani: We think there are also risks of further tax rises, given the move higher in rates post the budget has reduced the fiscal headroom which raises risks of higher taxes down the line.
Jack Meaning: The fiscal choreography for next year will be very difficult. Based on the shifts in market interest rates since the Budget, and weaker data on growth, it is likely the buffer the chancellor left herself in October against the fiscal rules has been wiped out. If this is still the case when the OBR present a new forecast in March, then the chancellor will need to decide if, and how, to respond. But with the pending review seemingly not planned until June, and recent confirmation of just one fiscal event a year in the autumn, uncertainty around what this means for taxes and borrowing remains high.
John Llewellyn: Yes. Like so many countries, the UK is caught between two conflicting public desires: the wish for more public spending, ranging from health to social services to education and the need to spend more on defence; and an equally strong desire to see tax cuts, or at least no increases. This is at root not a matter of political credos: it is straightforward fiscal arithmetic.
Paul Hollingsworth and Dani Stoilova: The risks are clearly titled towards additional consolidation, rather than additional fiscal loosening, given limited fiscal headroom to begin with, and a challenging medium-term macroeconomic backdrop. Absent a growth miracle, further tax rises may be required to fund ambitious investment aims.
Will households feel better or worse off in 2025 compared with 2024?
Andrew Smithers: Yes stagnation means no average change in incomes. So falls match rises and falls hurt much more. Households thus feel worse off even when they are not. So yes, they will feel worse off in 2025.
Costas Milas: Households will feel worse. Despite inflation returning and staying close to the 2 per cent target, prices remain too high.
Maxime Darmet: Households real disposable income will continue to rise, so they should feel better off, overall. Nevertheless, it should slow down because of slowing wages and less dynamic job creations.
Joseph Pearlman: It will take a while for the big leap in prices of food and energy post-Covid to be filtered out of the national psyche, so I am neutral on this.
Tim Leunig: I don’t think that there is a sensible, universal answer to his. Pensioners will largely feel better off. People who own their own houses will be fine too — unless they have kids in private school. For mortgage holders it will depend on whether their mortgage deal expires — for some 2025 will be no fun at all, if they have a five-year-fix ending. Renters are likely to suffer as well. The average is not very interesting.
Anonymous: Marginally better.
Linda Yueh: So long as interest rates continue to come down and there is no spike in inflation, households should feel better in 2025 as GDP growth is expected to be stronger than in 2024. That’s the average. For those impacted by the tax increases, they may not feel better off even if the average household is better off due to GDP growth.
Chris Martin: Household sentiment is very hard to predict. I expect most households to be better off next year. But I am not at all sure it will feel like that to them.
Diane Coyle: Worse off. It isn’t just a question of median incomes not rising much in real terms. It’s the unaffordability of housing, the cost of essentials like commuting and energy, the inability to get to a GP or long waits for treatment, the damn potholes everywhere, the daily battles with voicemail menus, the train delays….. None of this will get much better within 12 months.
Anonymous: Better off. Somewhat rather than somehow:-)
Howard Davies: They probably won’t be worse off, but they may well feel they are.
Sanjay Raja: Real disposable incomes are still expected to increase as pay settlements track above inflation. But a deteriorating labour market, we think, will result in only a modest expansion in household incomes. Sentiment already seems dicey, following the Budget. The threat of a trade war will also weigh on households’ perceptions. We expect households to feel broadly neutral compared to 2024.
David Page: We forecast real household income growth to rise by around 1 per cent in 2025, a little slower than the 3 per cent estimated for this year so in actual terms they will be better off, but the improvement will be less than this year. Whether this is “felt” by households is a moot point, but we suggest that these developments tend to be “felt” with a lag and households are likely to be increasingly cognisant of gains from this year into 2025. moreover, a broader climate of inflation stability around target and gradually declining Bank of England policy rates providing some further reduction in mortgage rates and a gradual, steady improvement in the housing market will on balance lead households to “feel” somewhat better off.
Anonymous: Energy prices will go down, which will make people feel better off, but output and growth will remain slow, so people will not feel either much better off or much worse off than now.
Paul Dales: Our forecasts that real wages will grow by 1.7 per cent in 2025 and that real household disposable incomes will increase by 2.2 per cent suggest that households’ finances will strengthen in 2025. The reality, though, is that a lot of households’ perception of whether they are better or worse off stems from the level of consumer prices. Although inflation is much lower than in recent years, the level of prices for key items such as food and utilities remain much higher. That means there might be a weird situation in 2025 in which households are becoming better off, but don’t feel it.
Fhaheen Khan: Many households may feel a sense of optimism following the government’s latest budget, which avoided direct tax rises to consumers and raised the national minimum wage. This should help those in low pay work feel they are keeping up with the pace of inflation and encourage both increased spending and savings to an extent. That being said, the increasing cost of essential household bills, such as energy or mortgages/rents, could diminish that optimism relatively quickly. Confidence is key to supporting the household sector which plays a major role in generating economic growth through its spending. This is why it is so important for the government to maintain a positive outlook for the nation which can directly affect consumer sentiment.
Neville Hill: They will feel better off. Real and nominal disposable income growth should be solid as inflation has fallen but pay growth remains resilient.
Andrew Goodwin: We expect real incomes to grow by about 1 per cent in 2025, well down on the 3 per cent plus that we’re likely to have seen in 2024. But I’m not sure that households have felt that much better off this year, simply because the recovery came on the back of the 2022/23 inflation spike, so it only mitigated some of the previous damage. That workers are likely to get smaller pay rises and the 2025 benefits uprating will be smaller than last year may also contribute to the perception that living standards aren’t improving that much.
Nick Bosanquet: The current gap between households’ perception of inflation (5.2 per cent) and CPI inflation out-turns is relatively large by historical standards “(Bank of England Q Nov.) There is much anxiety about inflation. Households are holding back on big-ticket items and saving more. For many there is also worry about retirement income. More reassuring with be stability in energy bills. Most households will be solvent . . . but with a lot of worries for the future. They will not feel better off . . . but just about managing.
Michael Wickens: Worse off due to lower employment, wages and higher taxes and energy costs.
Panicos Demetriades: Households will feel somewhat better off by the end of 2025, as inflation will ease further, the Bank of England will continue to cut rates and stronger economic growth will be more widely felt.
Evarist Stoja: I expected the UK households will feel marginally better on the back of lower inflation.
Stephen Millard: Better off. I expect real incomes to continue rising.
David Cobham: Feelings are not always a good measure (see US election), but I think on average households will be a little better off by the end of 2025.
Nicholas Barr: Not very different: some growth in real earnings but damped by frozen income tax thresholds and increased employer national insurance contributions.
Andrew Oswald: Slightly worse off, possibly, although starting from such a low level of optimism is paradoxically helpful. Low aspirations help humans feel better psychologically about modest outcomes.
Robert Wood: Real disposable income will probably keep rising as wages outpace inflation, but households probably won’t ‘feel’ much benefit from that. Real wage gains will be smaller than this year and while interest rate cuts will lower debt interest bills, saving income for many will fall. But headline inflation will rise, particularly for high visibility items like utility and water bills. Meanwhile unemployment will probably rise modestly which will hurt any feelgood factor from rising real wages.
Tomasz Wieladek: Households will feel better off in 2025. Real wages will continue to rise. House price growth will remain steady. These are all positive factors for households’ wellbeing. The prices of many manufactured goods, including electric vehicles, will probably fall drop significantly, as China floods global markets with excess capacity. On the other hand, employment growth will probably weaken and unemployment rise, raising households fear of unemployment. This means that overall, households will only be somewhat better off on average.
Matt Swannell: Households will probably continue to benefit from healthy real incomes as 2025 earnings growth gradually normalises. The EY Item Club expects that falling interest rates and reduced consumer caution will result in households saving less, thereby boosting household spending. However, some of the lagged effects of past bank rate rises will continue to weigh on some households as they re-fix their mortgages on to higher interest rates.
Michael Saunders: Probably little changed. Real wages will be rising, but more slowly than in early 2024 and the tax burden will be rising. Some people will benefit from lower mortgage rates, but there will also be a sizeable group whose mortgage payments rise as previous cheap fixed-rate mortgages expire.
Andrew Wishart: Households will feel better off in 2025 than 2024 as average pay completes its catch up with the rise in prices since inflation took off in early 2021.
Alpesh Paleja: The technical answer is “better off”, given that real incomes should continue to grow. But there will probably remain a large disparity around how households are feeling across the income distribution — many continue to struggle with a high level of prices and the lagged impact of higher interest rates, both of which will remain a theme in 2025. The added caution around the economic outlook in part explains why real wage gains so far haven’t really translated into materially higher spending.
Ray Barrell: Households should feel better off in 2025 as public service delivery should begin to improve, offsetting the negative wellbeing effect of higher taxes. However, increased employers’ NICs should, by the end of the year, be coming almost entirely out of wages, offsetting the previous chancellor’s reduction in employees’ NICs. The balance is uncertain.
Ethan Ilzetzki: Better, but this will depend on how quickly the government will be able to move forward with its planned public investments and planning reforms. Construction is an engine of growth and creates jobs in the lower to middle-income brackets. Previous impediments to construction have held back growth in incomes and employment.
Anonymous: With inflation coming down households will feel a bit better than in 2024
Vicky Pryce: They will feel better off. Inflation is slowing down and wages will probably continue to rise faster than inflation and the higher-than- inflation rise in minimum wage will help. Interest rates are also coming down, though perhaps not at the pace they should. Partly offsetting this is a possible rise in unemployment, tax thresholds remaining frozen during the year, and household energy and water bills likely to be rising again.
Tony Yates: I’d guess that we are in for a year of stagnation or at best weak growth in real incomes.
David Meenagh: With falling inflation, and reasonable wage growth, I expect households to feel better off.
Kate Barker: Worse off in terms of their ability to spend — but maybe better off in terms of feeling the security of a better funded and performing public sector.
Yael Selfin: Relatively strong real wage growth, low unemployment and falling interest rates should improve households’ financial position.
John Philpott: Household finances will probably feel much the same in 2025 as they did in 2024. Price inflation will remain noticeable even though feel less of an obvious shock than in 2022 and 2023. The level of domestic energy costs will still be a big drain for many. Real wage growth should overall remain positive, boosted by above inflation increases in the national living wage and public sector pay, albeit private sector pay growth may be constrained as businesses pass some of the forthcoming hike in employers’ national insurance contributions on to workers. The NICs effect may also affect employment growth and lead to slightly higher unemployment, which could dampen any household feel good factor in 2025.
Andrew Mountford: When people judge how well off they are, they will compare themselves to other people. If they visit the US or eg. watching US TikTok content, it is evident that UK living standards are comparatively poor. People, of course, also compare themselves to other people in their own country. People tend to look upwards and the share of income going to the top 10 per cent has increased hugely in recent decades — see the work of Piketty and co-authors (The precise numbers are disputed by the recent trends are clear see here). Thus, even people doing better than average may feel themselves to be faring poorly compared to the top 10 per cent. These trends have been evident for a long time and so these feelings are not going to change as a result of one or two years of better than average growth.
Francis Breedon: Marginally better off
Lena Komileva: Stronger real household disposable income growth means living standards will improve. Much depends on whether companies respond to the hike in employer NICs in the last Budget by limiting wage growth and employment, or by raising prices for consumers. Persistent cost of living pressures, weaker labour demand and high-for-longer policy (and mortgage) rates may limit the feelgood factor for households.
Gerard Lyons: Unemployment will rise, and so a small but significant number will suffer directly as a consequence of the Budget’s increased tax on employment. Overall, though, and in line with the Budget time projection of the OBR, household incomes should rise modestly in real terms in 2025, so households should be better off, but they may not feel it.
Gary Styles: Worse off. Higher taxes (including council tax) and inflation will squeeze households.
Bart van Ark: They may “feel” worse off, but most of them won’t be as real wages increase.
Ricardo Reis: The Budget significantly raised the labour wedge tax, and firms will pass the NI increase to workers. Therefore, wages may well stagnate, even if GDP picks up because the government policies succeed. Hopefully, in a few years as GDP accelerates, they will be better off, but next year the higher taxes will bite.
Jumana Saleheen: Overall, we think households will be better off in 2025, driven by an increase in real wages. The expected continued fall in both inflation and the bank rate is a welcome development for households. This, coupled with a stronger economy, gives us conviction that real wages will grow in 2025. Moreover, households’ savings rates are at historically high levels, and so consumers may be tempted to spend more next year as the economic momentum improves.
That said, recent tax hikes announced at the October Budget are likely to hurt households, albeit mildly. Moreover, the potential uncertainty coming from the Trump presidency could also negatively weigh on households.
Jessica Hinds: Households are likely to be fairly cautious heading into 2025. On paper, the household sector is in a stronger position to start the new year than it was 12 months ago — interest rates are coming down, wage growth has outpaced inflation for the best part of 18 months, and the household sector is sitting on saving buffers. However, there are a number of headwinds and we have already seen a recent slide in consumer confidence that suggests greater caution on the part of households. Although interest rates are coming down, the lags in the pass-through to the real economy mean that a good number of mortgagor households still face higher monthly payments as their mortgages reset. There are also worries about rising unemployment and future tax rises. Energy bills are also rising once again.
Paul De Grauwe: Households will feel better (n terms of purchasing power) in 2025 than in 2024 as inflation will continue to decline.
Kallum Pickering: Better. After the big inflation squeeze on household budgets in 2022 and 2023, real incomes returned to solid growth in 2024. The improving picture for consumer purchasing power with the broader state of household fundamentals. Employment is elevated, consumer credit is low, and mortgage costs remain manageable. But despite the big jump in real incomes last year, real consumption has lagged and saving has increased. This probably reflects a greater incentive to save at elevated interest rates — that is the Bank of England’s tight monetary policy at work — as well as some lingering precaution after several years of unusual shocks. Looking ahead, continued healthy real wage growth and gradually declining interest rates should lift the mood and encourage households to ease their purse strings. As long as no new shocks disturb momentum, expect a consumer-driven economic upswing through 2025 and beyond as precautionary behaviour fades.
Jonathan Haskel: Food and energy inflation seem particularly salient to households and with inflation in those coming down they might “feel” slightly better off.
Andrew Simms: How households feel goes far beyond an economic question. Central to resurgent extreme rightwing politics is the provocation of exploitable discontent. If the majority of the right-leaning media (which is the majority of the media per se) leans into this, whatever happens in the economy may be less influential on how people feel. Greater instability due to the extreme weather of climate change, and the extreme politics of Trump and others is likely to fuel insecurity which undermines wellbeing and life satisfaction. Labour’s problem is that in its attempts to draw support from the right, it uses a kind of performative politics it hopes will appeal but in doing so indulges in anti-migrant and anti-nature sentiments (see recent comments that nature will come second to new building around towns and its attitude to climate protest) that, in a vicious circle, fuel and are fuelled by insecurity.
Ian Plenderleith: Worse off.
Michael Taylor: Households will feel slightly better off next year as real wages growth remains positive and employment levels are sustained — if not increased much. For property owners their perceived wealth will rise as house prices continue on an upward trend, helped by modest further cuts in the bank rate.
Matt Whittaker: Modestly better off. Pay rises have fallen short of inflation in the last couple of years so we should now expect a year or two of catch up, in which employers provide modest real-terms rises designed to make up some of the ground lost through the cost of living crisis period.
Victoria Clarke: Looking across the past year, it has not been the case that households “feel” better off. In fact, consumer sentiment closed out the year not far from where it started, below long-term norms. That is different from the economic reality where 2024 has been a year in which, on average, real pay growth has risen solidly whilst other, seemingly important influences, like the size of direct debit payments for energy bills, have fallen. In short, households may be better off than on January 1st, but they are not feeling it after the shock of recent years. Of course, for mortgaged households, there is also the prospect that payments have risen too as mortgage deals have reset.
Will next year be any different? We are not convinced. Our forecasts imply that households will see positive real pay growth, though less decisively than in 2024. Energy bills look set to creep up again, at least until summer. And, for many, concerns about the slow loosening of the jobs market will ensure that uncertainty acts to hold back a recovery in sentiment. If slow-to-fall UK inflation moderates rate cuts, this will only add to the delay in households feeling better again.
Suren Thiru: Households will only be superficially better off as the boost to purchasing power from continued positive real wage growth is largely offset by the effects of a weakening labour market, an onerous tax burden and high costs for household essentials. Any improvement would follow a prolonged period of declining living standards, and as such, households are unlikely to feel any material change. Poor productivity is likely to remain the main barrier to delivering sustainably higher wage and a meaningful improvement in living standards.
Simon Wells and Liz Martins: Households should be better off in real terms, with wage growth higher than inflation. House prices are on the rise and many still have a decent savings cushion. The biggest unknown at the moment is the jobs market. With the cost of labour rising meaningfully, companies are reporting plans to lower headcount, automate, move operations offshore, reduce planned wage growth or raise prices. All of these are negative for UK workers, so the question is how the pain will spread out. The risk is that it’s not just hiring freezes and lower vacancies that we see in 2025, but redundancies too.
Susannah Streeter: They are likely to feel better off thanks to cuts in interest rates and the minimum wage rising.
Gaurav Ganguly: Better off
David Bell: Those households that have agreed multiyear wage settlements may continue to see rising living standards, but for many, wage growth will be slower. For them, slower than expected reductions in mortgage costs and continued price inflation will undermine any “feel-good” effects.
Noble Francis: Households ‘feeling’ better off is difficult to measure and consumer confidence indices are both skewed towards sentiment and are volatile. However, after two years of broadly flatlining economic activity and sustained consumer price inflation in 2022 and 2023, real household disposable income rose in 2024 and is likely to rise in 2025. This should make households financially better off near-term.
Barret Kupelian: Real wages will grow but households will continue to feel poorer.
John Muellbauer: It depends on which households. With higher unemployment and a weaker labour market, poorer households are likely to feel worse off. Asset-rich households not running labour intensive businesses will feel better off.
Anonymous: Disposable income should continue to inch up (especially for those on the minimum wage) but the public mood seems pessimistic and resentful so even a further year of slow growth in incomes is unlikely to persuade people that they are better off
Dhaval Joshi: Somewhat better, because inflation will be slightly lower while growth will be slightly higher.
Thomas Pugh: A key driver of the acceleration in growth next year is a revival in consumer spending. RHDI had increased by almost 3.7 per cent in the year to Q2, however households had saved most of that income with the saving ratio now at 10 per cent and the stock of savings recovered to close to its real pre-crisis trend, we expect the saving ratio to gradually decline next year. A gradual fall in interest rates should also help reduce the incentive to save.
Colin Ellis: I’m not sure households will be much different either way. One of the big lessons of recent years is that inflation definitely still matters — but also that households do care about price levels, not just changes. The recent episode is one where price levels rose rapidly, but then the pace of further price increases slowed. Until households feel that their wages are rising to compensate for those big recent price increases, I don’t think they will feel much better off. And I don’t see strong wage growth in 2025.
Philip Shaw: Worse off. Fundamentally, post-tax household incomes should rise by some 2.0 per cent in real terms in 2025, but it would not be a surprise if sentiment remains subdued, much as it did over 2024 when incomes were rising strongly. This need not be a material constraint on consumer spending however as British households tend to spend according to their income levels rather than their reported levels of confidence.
Jagjit Chadha: Much the same, I think. A mixture of hope, fear and disappointment will dominate.
Neil Blake: Better off.
Jonathan Portes: I said (accurately) last year that overall, UK households would see modest but positive real income growth in 2024, but that how that was experienced would vary substantially between households; the same applies to 2025. In practice, how households feel about the economy may depend as much on whether and how quickly the government can translate extra spending into repairing and improving the catastrophic state of public services (especially the NHS and policing/crime) that it inherited from the last.
Andrew Sentance: Not much changed, but households expecting falling mortgage rates to boost their financial position will be disappointed.
Alfie Stirling: Microsimulation modelling at JRF, based on the latest forecasts from the OBR, suggests that after housing costs the average family will be around £200 a year worse off in real terms in 2025 than it was in 2024. This is largely driven by rising housing costs, slower (post tax) earnings growth, and real terms squeeze to social security income. Working age families with children are expected to see the greatest squeeze.
Marchel Alexandrovich and David Owen: Human nature suggests that more households will think there are worse off, even as real wages more generally rise. We would highlight the significant structural changes that continue to be under way, creating many losers. Many companies facing additional costs will need to refinance, at perhaps higher rates, and for many households mortgage rates have already risen. 2025 will probably bring greater job insecurity, along with some pick-up in unemployment (albeit from a low level). The general narrative may remain negative, adding to the feeling of insecurity. We do not expect the Bank of England to cut rates as much as is being priced in.
Trevor Williams: They won’t feel any better, but price inflation should be lower on average, so slightly better off, and policy is on a more even keel.
Morten O. Ravn: With inflation hopefully coming down and therefore the outlook to falling interest rates, households should with all likelihood feel better off. But it all will depend on the growth performance. I remain moderately positive though.
Nina Skero and Sam Miley: Households are expected to be in a slightly stronger position this year than last. Though some upward pressure on inflation is anticipated, it is still set to fall short of earnings growth, meaning pay is increasing in real terms. Households outside of the labour market should also be supported by the uprating to security payments, which were recently increased at an above-inflation rate.
Towards the end of 2025 we expect to see the government’s increased tax burden begin to negatively impact some households, however, both directly and indirectly eg via stifled business activity due to higher NICs.
George Buckley: Probably better off — a combination of rising employment (if we can believe the figures), falling employment and rising nominal wages (thus rising real wages), and declining interest rates is encouraging for the outlook for household finances.
Bronwyn Curtis: Real incomes have been rising for many as inflation has come down and pay settlements have risen. The main positive impact is in the past and taxing the working population and bringing more workers into the NI bands will not make them feel better off.
Lydia Prieg: UK real wages will probably grow in 2025 due to lower inflation, base effects, the lag between the cooling jobs market and its impact on wages, and increases in the minimum wage. However, while inflation has fallen far from its 11 per cent peak, many households are still feeling the cost of living crisis. While long-term investment in areas like energy production and home insulation is vital to help bring long-term price stability, the government could also raise people’s living standards right now through policies like scrapping the two-child limit, lowering bus fares or introducing a national energy guarantee (a set amount of energy available at a low rate, followed by higher rates for additional energy use) to keep bills down.
Sonali Punhani: We expect household consumption growth of 1.1 per cent in 2025 vs 0.7 per cent in 2024. Consumer spending is still expected to grow in coming years despite some headwinds from tax rises due to real wage growth/ waning impact of rate hikes and there are some upside risks to consumer spending if the elevated savings rate falls. We expect the labour market to continue to ease, but recent out-turns and upgrade to demand means we now expect unemployment rate to increase to 4.4 per cent by end 2025 (less than 4.6 per cent before). Risks are balanced in both directions — the rise in employer NICs/tariffs risks could dampen hiring while a stronger boost from fiscal easing could lead to a stronger labour market, which would have implications on households.
Jack Meaning: Real incomes should continue to grow in 2025, as wage growth remains above inflation. However, rising unemployment will act as an offset, and we have seen a notable drop in consumer confidence in the final few months of 2024, suggesting that uncertainty, continued restrictive policy and a downbeat view on the outlook continue to weigh on sentiment. We have seen the same in our high-frequency indicators of spending, based on credit and debit card transactions. This will be likely to lead to relatively subdued, but positive consumer spending growth, while household savings remain high by historical standards.
John Llewellyn: They will probably be marginally better off, but feel slightly worse off, not least because they are influenced by the items that they buy frequently (food and services), yet markedly less so by the prices of goods, which they buy less frequently yet which often increase in price much more slowly.
Paul Hollingsworth & Dani Stoilova: With the labour market showing signs of weakening and inflation likely to stay elevated throughout 2025, there are some pressures on household sentiment. However, with interest rates likely to fall further, and signs of a recovery in the housing market, there are also some counterbalancing factors, meaning that 2025 may not feel all that different — at least in the aggregate — to 2024.
How do you expect the Trump administration’s policies to affect the economic outlook in your region and the global economy in 2025?
Philip Booth: The increased protectionism will clearly lead to problems and, if there is a trade war, will also lead to a decline in trade and growth over the long term. I would expect the UK to be less affected than other countries (because of our comparative advantage in services) and the effects to arise over more than one year.
Andrew Smithers: This cuts in corporation tax will be a big stimulus to longer-term growth, but his tariff policy is inflationary and its implementation unknown and unforecastable. Short-term stimulus to demand and inflation seems likely.
Costas Milas: Trump is “predictably unpredictable”. This is the textbook definition of economic uncertainty. Trump’s threat about tariffs on imports is already impacting negatively on the world economy. Even if Trump decides against tariffs, he might proceed with these tariffs at a later stage. Notice, however, the obvious which has escaped attention: Trump is currently threatening everyone with tariffs, therefore weakening (all) other currencies and lifting the US dollar. The higher dollar is currently adding to deflationary pressures in the US. If Trump eventually proceeds with tariffs, their inflationary impact on the US will coincide with a starting point of low inflation, since the exchange rate effect is creating a deflationary ‘buffer’! Not a ‘bad’ strategy (from Trump’s point of view). Maxime Darmet: Under our contained trade war baseline, the UK will face tariffs of around 4-5 per cent, which will cost the economy about -0.2 percentage points growth in 2025. This number would more than double in the event of a full-blown trade war.
Joseph Pearlman: Trade with the US is a small percentage of overall trade, so Trump’s tariffs will only have a small negative effect. His proposals might even hasten increased co-operation between the UK and the rest of Europe, which would be a boon for all.
Tim Leunig: The effect of Trump on the UK economy will be muted. The $ will remain the reserve currency, the US is largely autarkic, so trade wars are not that critical. He might add tariffs to a handful of high profile sectors, but a relatively low share of our GDP depends on exports to the US. We are also decent contributors to Nato, and are unlikely to be his #1 target
Anonymous: The combination of even more expansionary US fiscal policy and the imposition of substantial tariffs will almost surely add to US growth and inflation. However, the net impact of these policies on other countries is much less clear and will depend on whether or not the US tariffs lead to the imposition of retaliatory tariffs elsewhere.
Linda Yueh: Dampen global economic activity due to tariffs and trade restrictions, which will impact the UK as an open economy. If the Trump administration extends tax cuts as expected and borrows for this and other reasons, then inflation may be higher than expected that could mean that US interest rates remain higher for longer. That increased cost of borrowing will add upward pressure to the global cost of capital and could cause other central banks to keep rates higher than longer as well.
Anna Titareva: We view external demand (and uncertainty around trade policy) as one of the downside risks to growth for 2025.
Chris Martin: That is very hard to predict! I expect a moderate negative effect, on the grounds that he probably won’t do everything he is threatening to. But the honest answer is that I have no idea. And nor does anyone else. Diane Coyle: Who knows?
Anonymous: Limited impact on the UK. Somewhat higher inflation rates and the $ in the US.
Howard Davies: Very hard to say until we know what his real plans for tariffs are. There may be a sugar rush in 2025, but thereafter tariffs will weigh on economies like the UK’s.
Sanjay Raja: Our baseline involves only a modest increase in taxation over 2025, and in particular, targeted to the UK. The effect on growth will be stretched across several quarters, and likely won’t impact GDP growth meaningfully until 2026.
David Page: We expect the Trump administration’s policies to have a net negative impact on the UK economy, but gradually in 2025 reflecting an implementation lag from these policies and some delay in them impacting economies — although we see a risk of a more instantaneous reaction from financial markets. Moreover, although we expect these to be a little negative for the UK, we are expecting the impact to be more negative for some other regions, including China and the Eurozone. We see a risk that headwinds will grow for the UK and elsewhere into 2026. We are also mindful of the more unpredictable impact of geopolitical developments that could follow as a consequence of the new administration’s policies.
Anonymous: The price of imported goods from China will fall, offsetting some reduction in exports to the USA. So, it will not have very much effect, if at all, on the UK economy.
Paul Dales: In response to Trump’s election and his likely policies, we have revised down our forecasts for US GDP growth and world GDP growth. That means overseas developments will probably be a small drag on UK GDP growth in 2025. We’re also assuming that Trump will impose a 10 per cent universal tariff on US imports and that this would apply to the UK. But since the pound would probably weaken to cushion the blow and the UK’s services exports to the US (which are likely to be exempt) are twice as important as its goods exports, we doubt this will be a major blow for the UK economy. Fhaheen Khan: By all good measures, the impact of potential global US tariffs will negatively hit the UK’s economic outlook. Though it is expected that we would avoid the worst of the damage given the UK enjoys a positive trade relationship with the far west despite not currently having a free trade agreement in play. It is likely that the Trump administration will pursue its objective to decouple supply chains from east Asia with full force whilst avoiding negatively impacting trade with existing partners, which would also include the EU.
However, the implications of new tariffs do not bode well for the global economy if all affected parties retaliate in kind. This will dampen global growth prospects, the impact of which would not exclude consumers and businesses in the US itself either. A more likely scenario would be a tempered approach to applying tariffs by the US government that prioritise domestic industries and will allow opportunities to negotiate terms for its allies. The private sector may respond by redirecting investment to diversify their portfolios and expand into markets outsides of the US which could present an opportunity for economies like Mexico and Brazil, and even the UK.
Neville Hill: The UK may avoid many of the downside risks associated with the Trump administration. As an economy with a trade deficit and an export mix increasingly dominated by services, there’s less of a threat of, or from, tariffs compared to many EU countries. At the same time, US tariffs on other countries’ goods exports may divert goods trade towards the UK, meaning cheaper imports and lower inflation.
Andrew Goodwin: We expect Trump’s policies to have more of an impact in 2026 than 2025. Looser US fiscal policy should start to boost global demand. We don’t expect US trade policy to impact the UK directly. We think the US will take a targeted approach to raising tariffs, focusing on countries that have large trade surpluses with the US, impose high tariffs on imports from the US, and employ tariffs that have a material impact on US jobs — the UK scores relatively low on these criteria. Where Trump does increase tariffs, we expect the impact to only start to come through in late 2025, with more of the impact coming the following year.
Nick Bosanquet: Little actually known about how the policies will actually turn out. Some way out as for 60 per cent to 100 per cent tariffs on cars from Mexico currently exporting 2mn cars to US. Much depends on response by China — may double up on strategy of links with the global south and with Europe. May also push for Ukraine settlement. China now linked to erratic partners that it cannot control . . . North Korea, Russia, Iran. Must get out of this position in order to meet Xi/CPC goals. Improvement in world tensions in next two years may outweigh effect of Trump actions. At least supply chain problems through the Middle East have already been reduced. Michael Wickens: Trump is conducting a very interesting experiment which will determine the future path of political economy. It could reverse the trend of recent years towards greater state intervention in the economy. Countries will have decide whether to follow suit or stay in the slow lane.
Panicos Demetriades: This is a tough question as Trump is largely unpredictable. However, it appears that this time, Republican party officials are likely to take a more active part in the administration, which I find somewhat reassuring.
If we are to believe that Trump will succeed in stopping wars, particularly the Russia-Ukraine war, the global economy stands to benefit substantially. That is, of course, the optimistic scenario but it is my own central scenario at the moment. However, considerable uncertainty surrounds this scenario as Trump can be totally unpredictable.
However, increased protectionism, which is also likely under the Trump administration, can hamper global trade and growth and could also cause new economic and political instability. The likely impact of US protectionism on China’s exports and growth and the indirect effects on the global economy can be very substantial indeed and can heighten geopolitical uncertainty.
Evarist Stoja: Much will depend on whether Trump’s threats of tariffs is a negotiating opening position or a genuine policy to be implemented soon in the new year. If the former, we will see how it plays out but if the latter then it is highly likely it will increase economic and political tensions further and in turn lead to higher inflation and dampen economic activity and ultimately growth.
Stephen Millard: This depends, of course, on what policies he puts in place. If he were to raise tariffs on UK goods I would expect that to have a negative effect on UK GDP and a positive effect on UK inflation.
David Cobham: Hard to predict (!), bad but almost certainly not as bad as some people have suggested, for both Europe and UK, on one hand, and global economy on other.
Nicholas Barr: If implemented, the Trump administration’s tariff proposals would have a negative effect, the strength of which would depend on (a) the size of the tariffs, (b) the target countries and (c) the extent to which other countries do or do not retaliate.
Andrew Oswald: Only slightly negatively in our region, unless Putin is hugely emboldened.
Robert Wood: It’s anyone’s guess precisely what Mr Trump will implement, but his proposals would most likely be stagflationary for the UK. Admittedly raising US tariffs could lead countries to divert exports elsewhere, depressing prices. But other countries will probably retaliate against Mr Trump, and sheer uncertainty he injects into the prospects for global trade would likely lead to some fracturing of supply chains and higher costs.
Martin Weale: That depends on what the policies are. Trade barriers are likely to have a damaging impact on the global economy, but comparisons with the 1930s overstate the likely impact. If the budget deficit is allowed to expand further, though, the impact may be offset, and business optimism may also rise. Hence, I am neutral below.
Tomasz Wieladek: The Trump administration policies will have two different effects. On the one hand, they will probably significantly raise economic policy uncertainty, especially trade policy uncertainty, in the short term. Many businesses with international operations will try to wait out this once-in-a-generation reconfiguration of key global trading relationships. This means that investment will be weaker than expected. This will negatively affect the UK as well.
But there are some big indirect positive effects, which will more than outweigh the negative effects. First, President-elect Trump’s tariffs on China will create significant excess capacity in global goods markets. This excess capacity will probably be partially absorbed by the UK, leading to lower imported goods prices. The effects of this development will be like a positive shock to the UK’s supply side of the economy.
Second, the weak commitment of the Trump administration to NATO will give the UK significant negotiation leverage in the trade negotiations with the EU. Given its military strength, it is likely that the UK will be able to extract a much more favourable trade agreement with the EU. This will help support growth and reduce inflation.
Both of these indirect effects will more than outweigh any output loss from elevated economic policy uncertainty.
Michael Saunders: Perhaps a short term lift to global demand from looser US fiscal policy, but offset by Trump’s tariffs and higher global trade policy uncertainty. Trump’s policies are unlikely to generate a sustained improvement in the US and global economy, indeed over time they are likely to make things worse.
Andrew Wishart: Trump stands for tax cuts, deregulation, and tariffs. The upward impact on US demand and the dollar is likely to offset the direct impact of tariffs for the UK. That’s because the UK’s exports services to the US are skewed towards services, which are unlikely to fall within the scope of tariffs.
Alpesh Paleja: Even the most extreme tariff measures mooted by Donald Trump should have a limited impact on the UK alone, particularly given that most of our trade with the US is in services. But the UK will be exposed to any second-round impact from new trade restrictions on Europe, if this causes broader economic malaise across the continent, alongside any spillovers on global trade and growth. From a geopolitical perspective, the broader fragmentation of global trade is also concerning. Ray Barrell: US tariffs will slow growth elsewhere, especially in the open economies such as the UK. However, outside the US the prices of goods under tariffs are likely to fall a little. Tax cuts in the US should boost global demand, but interest rate responses and exchange rate changes are likely to reduce the effects. We should only answer you when we know what Trump’s policies are and the responses to them from others. We would expect a boost to demand from a strong rise in defence spending, especially in Europe and Japan. Ethan Ilzetzki: “America first”, the Trump tariffs in particular, will harm the US economy and the rest of the world, but I don’t think it will have a major impact on the UK economy.
Vicky Pryce: Tariffs may be the most beautiful word in the dictionary for Trump, but they are bad for global growth if they impede trade- and in the short term bad for inflation too. Competing in this environment becomes more difficult and trade gets distorted and not in the most productive way. Not clear at this stage how countries and regions will respond in retaliation, if at all and hence what overall impact may be. Worth remembering of course that the Biden administration was also very protectionist and Trump will just be continuing this trend, albeit in his own way. For the UK though, the idea that it will be spared tariffs being imposed on its products because of the ‘special relationship’ is wishful thinking and a more co-ordinated approach with the EU would make more sense. However, the emphasis so far is on goods whereas the UK exports lots of services to the US, not covered by the tariff threat as far as one can tell. Tony Yates: Very difficult to assess, but lots of risks, mostly to the downside. Risk of being caught in a trade war between the US and the EU, as the latter retaliates to possible Trump tariffs; risk of exposure to the shock of US pulling funding from the war in Ukraine, and this either being made up for by UK and EU spending, or the depressive effect of an increased Russian threat on the EU’s border.
David Meenagh: I don’t expect Trump’s policies to have too much effect on the UK economy due to exports being dominated by the services industry.
The impact on the global economy will be limited in the short term. The long term effects could be reduced by trade diversification.
Yael Selfin: A trade war may be less likely given the significant impact it would have on US economic growth, but uncertainty will have a negative effect regardless.
John Philpott: The global effect of ‘Trumponomics’ is the big known unknown as we start 2025. We know from conventional economics that Trump’s love of big tariffs on imports to the United States will eventually harm global economic welfare, hurting American citizens along with the rest of us. But what we don’t yet know is which countries will bear the brunt of the Trump tariffs, how big the tariffs will be, and how those affected will respond. The smart money is on China being Trump’s main target, EU manufacturing also in the line of fire. whether the policy. Very big tariffs aimed in these directions could trigger the kind of tit-for-tat retaliatory trade wars that are normally the stuff of economists’ nightmares.
The outlook for the UK is less clear cut, not being so much of an obvious villain in the Trumpian mindset as well as being primarily an exporter of services to the United States rather than a big, manufactured goods exporter and thus less affected by tariff policy. The UK may therefore have somewhat less to fear from any direct impact of the second Trump administration’s economic policy albeit there would nonetheless be a likely indirect negative effect on UK growth from a downturn in the global economy. Andrew Mountford: Brexit has left Britain in a poor place with regard to trade negotiations. The relative size of our economy relative to the US gives us very little bargaining power. Trade restrictions matter as the UK’s falling trade balance with the EU demonstrates. Thus yes, I think an aggressive US trade stance has considerable scope to harm the UK economy and a trade war would clearly have a negative effect on world economic growth. Francis Breedon: If announced policies — especially tariffs — are implemented than some negative impact in 2025 increasing in future years. Lena Komileva: The twin treats of US tariffs and China trade dumping pose an existential threat to core industries across autos, metals and chemicals, which will hit business sentiment, investment and hiring. With trade set to be a drag on growth in 2025, the impact from trade tariffs will depend on first and second derivative effects such as fiscal easing and industrial policies to shield domestic producers, and consumers. Gerard Lyons: Trump’s policies will boost US growth, but the impact globally will depend upon how extensive and high tariffs are, and how firms and countries elsewhere will respond. Trump’s policies may add to growth worries outside the US, and reinforce the need to focus on debt, particularly for western Europe economies, who will be under intense pressure to raise defence spending. China’s response will include relaxing domestic policy further.
Gary Styles: The Trump administration policies are likely to be positive for US growth in 2025 but the net impact on the UK is more difficult to assess at this stage. On balance, it is expected to be slightly negative for the UK particularly if tariffs are levied as feared.
Bart van Ark: No major effect. Trade pressures will be offset by ongoing strong US performance which benefits UK.
Ricardo Reis: A lot of uncertainty, which overall has a negative impact, but the volatile that comes with it also creates opportunities.
Jumana Saleheen: In the UK, we expect a very mild hit to GDP growth next year from the Trump administration. We expect a 0.1 ppts hit to annual 2025 growth, and a negligible impact on inflation. This view is informed from an analysis of the bilateral trade relationship between the US and UK.
Thinking about the global economy, while it is easier to talk about the partial equilibrium effect of certain policies on economic growth and inflation, it is much harder to speculate about likely future polices and the impact it has as a package on the global economy. Noting also that how new information propagate will also depend on the starting position for different economies — which we noted at the start is heterogenous. That said, one thing we do know is that economic policy uncertainty generally tends to be negative for economic growth.
Jessica Hinds: The threat of tariffs and rising trade protectionism hangs over the economic outlook, though the macro impact of a 10 per cent tariff on dutiable UK goods exports, which is our assumption in our Global Economic Outlook for all countries aside from China, Canada and Mexico) to the US would be modest. In any case, the majority of the UK’s exports to the US are services which, so far, the Trump administration does not appear to be targeting.
More broadly, a tariff imposed by the US on its goods imports would push up prices and costs in the US economy, reducing consumer real incomes and profits of US companies that rely on imported inputs. For the rest of the world, the impact will depend on trade exposures to the US and the degree to which those exports are price sensitive. Exchange rate movements prompted by the tariff shocks could also have a major bearing as the US dollar strengthens. The global effects are likely to be felt more fully in 2026 and we have revised down our 2026 world growth forecast by 0.1pp to 2.3 per cent.
Paul De Grauwe: If Trump pursues his aggressive protectionist policies in 2025 this will affect the UK economy and the global economy negatively. Much will depend on how the other major players react. If this leads to a major trade war the effects will be very negative, not immediately in 2025, but certainly later.
Kallum Pickering: I have selected neutral to reflect the large two-sided risks, not to reflect that I think the impact could be neutral. Consider this a balanced-probability weighted view that things could go very right or very wrong.
The proposed economic and foreign policies of the incoming Trump administration pose large two-sided risks to the world economy and especially to advanced open economies in Europe. If Trump manages to negotiate an end to the ongoing Russia-Ukraine conflict, for instance, Europe would benefit; however, the situation is unstable and fraught with risk. A miscalculation could go badly wrong.
If Trump’s plans to deregulate the private sector lift US potential growth and productivity, it will set a positive example for Europe, which is desperate for pro-growth supply-side reforms and could encourage a more widespread wave of deregulation in advanced economies. That said, proposed sudden and aggressive Federal spending cuts by the so-called department of government efficiency (Doge) could cause a slump in US domestic demand, which has benefited from the Biden administration’s large debt-financed spending programmes.
Trump’s penchant for tariffs is misguided; however, if Europe and China manage to strike deals to avoid a damaging tariff war, the impact may not extend beyond the current fear factor. Finally, whether planned cuts to corporate and some income taxes extend the current US upswing or provoke worries about US fiscal sustainability and a correction in the US bond market seems to be an open question, and may ultimately hinge on the outcomes of his other far-reaching policy pledges.
Phil Thornton: The impact will depend on what becomes policy reality — and that is the big unknown. There is no doubt that tax cuts will deliver a short-term positive impact in terms of US growth but tariffs will harm global growth and US inflation
Jonathan Haskel: There would be a profound effect if (a) the Fed were undermined and/or (b) trade wars were provoked. in the absence of these, I think the UK effects would be pretty minor or possibly negative on GDP.
Andrew Simms: Trump administration policies are very unlikely to improve the economic outlook in the UK, if only for the reason that they are likely to be unpredictable, wildly inconsistent and capricious. Good luck to any UK government hoping to deliver on the vain and delusional post-Brexit promise of compensating for our scorched earth approach to Europe with new shiny trade deals with the US and others. In fact, good luck to anyone trying to negotiate with a national embodiment of such aggressive and whimsical self-interest. Greater general instability, and a sense of the centre not holding will probably undermine prospects overall.
Ian Plenderleith: Adverse — damaging to the US, hence to the UK and to the global economy.
Michael Taylor: Highly uncertain of course but overall, the near-term effects could be marginally positive. I do not expect tariffs to be imposed on UK goods exports to the US and the initial effects (tax policies) may boost US growth and thereby benefit the UK and global economy. Further out, much weaker migration into the US will eventually slow US growth — this may be the most significant Trump policy in terms of the longer term impact on the economy.
Victoria Clarke: It is hard to be precise at this stage, since campaign trail promises do not always translate directly into enacted policy. We are watching closely to see how Trump approaches tariff conversations and whether he uses tariff threats as a route to advance policy objectives or more as a source of revenue; the latter might imply less of a negotiation. How Trump approaches this, and how other nations respond, will be key for the global economy. For the UK, exports to the US are more heavily weighted towards services, which would appear to shield the UK somewhat from goods-focused tariffs. But the UK economy will be impacted by a weaker European economy, where the vulnerability to goods tariffs appears greater.
Suren Thiru: New US tariffs would be damaging, but not terminal for the UK economy overall, given that most UK exports to the US are services, which would be largely unaffected by tariffs on goods. However, the damage to the global economy from possible retaliation from other countries in tit-for-tat trade tariffs could notably weaken growth, possibly through higher inflation.
Even though UK interest rates have further to fall, the upward pressure on inflation from growing global risks, including possible new US tariffs, could mean that policy is loosened more modestly than many anticipate.
Simon Wells and Liz Martins: No-one knows what is going to happen. The UK’s trade profile may make it less of a target for tariffs and less vulnerable to any universal levies. Indeed, any increase in US growth as a result of the new administration could benefit the UK’s services export market. However, it may prove hard for the UK to walk the line between better relations with the EU and the US at the same time. And of course, on the flipside, any UK retaliation against tariffs could increase import costs and inflation. Susannah Streeter: Volatility is set to be the name of the game in 2025 with both shares and bonds set to be jumpy over the next 12 months, during President Trump’s first year back in the White House and investors will be bracing for an escalation of trade wars. Inflation risks are higher, given that they are likely to head to higher prices for US consumers and it’s likely the Fed will be slower to cut rates through 2025 which could have a knock on effect on sentiment. There is a chance that inflation could be exported to other countries due to the effect on the dollar.
as higher inflation usually prompts the Federal Reserve to keep monetary policy tighter. Once other countries started to feel onerous effects of higher tariffs on their economies, there may be more demand for the dollar as it’s considered to be a safe haven, while a stronger dollar is likely to make US exports less competitive globally.
However, there is a chance that to mitigate the effect of tariffs global companies exporting to the US could slash prices which could have a deflationary effect. As far as the UK is concerned, it’s likely to escape the more onerous effects of tariffs compared with EU member nations given that services make up the majority of UK exports into the US, which are less likely to be targeted.
Already US indices have headed higher on a wave of speculation about the potential for deregulation and tax cuts and the 47th president of the United States’ impact could be positive for smaller companies. Trade tariffs favour domestic businesses over international conglomerates, and smaller companies are usually more domestically focused. However, these opportunities could be eroded if widespread job cuts are imposed on government departments and services, given how reliant the US economy is on federal spending.
David Bell: I do not expect there to be a significant effect from the Trump Administration policies in the short run. I suspect that immediate attention will be given to China and the US’s immediate neighbours, particularly focusing on tariffs and immigration. Any general imposition of tariffs would be negative for world trade, with the main effect being on countries that export components or finished goods to the US. This would hit the manufacturing sector more than services, which are the main focus of the UK economy. Thus, the UK, with its service-based economy, might hope to escape the worst of such effects, though it could not avoid being caught in the crossfire of a general trade war.
Noble Francis: There is lots of speculation about the impact of a Trump administration based on things that he said during the campaign, particularly with respect to US economic growth and, in particular, potential tariffs. In terms of US growth, the administration is likely to benefit near-term from the legacy of the Inflation Reduction Act and stronger economic growth for the US would be better for the UK and global economies. However, the evidence of the first Trump administration is that there is also likely to be a constantly, almost daily, stream of noise and speculation but little in the way of an effective significant change in policy delivery, especially early on. The uncertainty from this may be unhelpful for global growth. In terms of tariffs, If the new administration does focus on tariffs, then they are most likely to be used as a short-term tactic to ‘do deals’ and be seen as a ‘dealmaker’, rather than tariffs as a permanent solution, especially early on.
Barret Kupelian: Overall, it will be negative. The Trump administration will be a “unpredictability machine” which will dissuade business and households from taking long-term decisions with ease. This will inevitably have an economic cost. Of course, we’re likely to see some positive effects to the UK economy some of which are likely to be unpredictable. This will mean that businesses will really have to think ‘out of the box’ to forecast the future — contrarian views will matter much more in the next couple of years. John Muellbauer: Badly. Tariffs and rolling back on the green agenda are bad for Europe and put the UK in a quandary: kowtow to the US or continue to repair relations with the EU. And China policy is another hard one. Dangerous choices.
James Smith: America is the UK’s largest trading partner, though around 70 per cent of exports are in services and thus unaffected by tariffs. Any big deregulation efforts in service-sector industries, redirecting investment away from the UK, would be of greater consequence.
Anonymous: He will cut taxes and borrow more — taking US debt to new heights but probably not enough to cause big problems in the gilts market in 2025. His tariffs will be a shock for the world economy and his deportation plan will tighten the US labour market at the same time so US inflation is likely to rise. This will be bad for growth in Europe (but perhaps a little less in the UK than elsewhere because our trade is so heavily weighted to services). His aggressive approach to US companies storing profits abroad will also have an impact here (and even more in Ireland). Dhaval Joshi: The UK will be relatively unscathed by any Trump tariffs, because:
1. The UK is not in Trump’s crosshairs compared to targets like China, Mexico, Canada and the EU.
2. Most of the UK’s exports to the US are services rather than the goods on which tariffs are usually applied.
Thomas Pugh: The direct impact of tariffs on the UK is likely to be relatively minor, since the UK already runs a trade deficit with the US and mostly exports services, which are likely to be excluded. However, as a medium sized very open economy the UK would be vulnerable to a global trade war. The bigger risk to the UK comes from higher US interest rates and a stronger dollar, which would risk stoking inflation and keeping interest rates high. Colin Ellis: This is obviously dependent on whatever the implemented policies actually are! Tariffs will squeeze profitability for UK exporters and would hit sterling a bit. But if Trump’s other policies damage the US economy — such as massive deportation of undocumented migrants, for instance — then the UK (and other countries) could look relatively stable and attractive as a consequence. I’m not sure I see a big read across from Trump to the UK next year though — I don’t think the UK is high on his list of targets. Philip Shaw: The US continues to act as the principal catalyst of the global economic cycle. The big elephant in the room of course is whether and how extensively the incoming US administration raises tariffs and the degree of any retaliation by other countries. It seems very possible that president-elect Trump will make an early statement of intent via an early set of tariff hikes and threaten further increases to extract concessions on various issues from other countries. This has the potential to reverse much of the globalisation over various decades but from a UK perspective one would hope that the British government limits any response via contained, symbolic moves which do not lead to further US action. Jagjit Chadha: Looser Fed policies and tariffs may extend the US boom but at the risk of igniting inflation. Neither policy will support long run supply side improvements. The planned tariffs may take something away from growth in the rest of the world.
Neil Blake: negative impacts through higher (than otherwise) interest rates and the impact of tariffs/trade wars and the impact on business confidence of the threat of tariffs/trade wars.
Jonathan Portes: Trump’s actual policies are very unclear, so predictions/forecasts are very difficult. Fortunately, most UK exports to the US are services and aren’t vulnerable to tariffs, so in the short-term the impact may be relatively limited, with stronger US demand offsetting the impact of any tariffs. Of more concern is the impact of irresponsible (or worse) fiscal policy on long-term interest rates, although on balance this is unlikely to materialise in 2025.
Andrew Sentance: Very difficult to predict. Not clear if Trump is talking about tariffs as a negotiating tactic or as a serious proposition. However, even talk about tariffs raises uncertainty so is bad for growth and investment.
Alfie Stirling: Difficult to predict until there is more detail.
Marchel Alexandrovich and David Owen: Very difficult to say. When it comes to tariffs the devil really will be in the detail, in terms of what exactly happens and whether we see significant shifts in trade flows, with trade diversion. Trade fragmentation could add significantly to inflationary pressures in 2025. We have only suggested a neutral impact on UK growth because the ultimate impact could go either way — stronger US domestic growth, at the expense of growth elsewhere is certainly possible, with the UK somewhere in the middle. But it could also accelerate UK moves for a trade reset with the EU.
We would also highlight the risk of potential substantial shifts in exchange rates, globally, with the EU the biggest creditor globally (and the biggest holder of US debt, particularly US credit, from outside the US), and the US the biggest debtor, especially if we see a further widening out in interest rate differentials in 2025. Sterling (with the UK also running a large current account deficit, as a share of its GDP) could again, as a relatively small open economy, be caught in the middle, if these shifts, adding to uncertainty. Trevor Williams: Make it more difficult — higher tariffs threaten trade wars. Pressure to open markets to US agricultural goods that have lower food safety standards and to allow its private medical providers to operate in the NHS.
Morten O. Ravn: There is probably little doubt that Trump will introduce impediments to US imports of foreign goods. This will be harmful to the UK and there will also be international repercussions of this. It is hard to see that UK can in any way benefit much from this even if US-UK trade will not be directly targeted. There might be other geopolitical repercussions. It is hard to know how this will turn out. In terms of US domestic economic policy, my guess is that Trump policies will not be very harmful to the UK unless there is an attempt at making the Federal Reserve less independent.
Nina Skero and Sam Miley: Trump’s spending and tax plans pose fiscal risks in the medium to long term. However, in the immediate future they will make the US an even more attractive place for investment, which will drive business and capital away from the UK and Europe. This will be amplified by the low rates of economic growth and increasing tax burden across Europe. The Trump administration’s focus on growth and pro-business policies may push European governments in a similar direction, motivating them to reconsider the rise in the regulatory burden and the growth of the state that has prevailed in recent years.
Trade is another channel through which the Trump presidency will impact the UK and Europe. The implementation of protectionist measures would stifle exporting sectors, and would also likely raise costs for importers in the case of retaliation. George Buckley: We expect tariffs — should they be imposed at 10 per cent across the board — will be negative for economic growth across Europe, in some countries more than others. Germany is one of the more exposed, and the euro area as a whole is more exposed to exports to the US than is the UK.
Bronwyn Curtis: A global shift towards increased tariffs would hurt an open economy like the UK. If Trump targets Europe with his tariff policy, there will be a negative spillover effect on the UK. Lydia Prieg: The US is major trading partner for the UK, so tariffs would stoke inflation and depress growth. Some companies could also relocate to the US to avoid the tariffs. However, the UK will probably be less affected by US tariffs than the Eurozone, as the British economy is more skewed towards trade in services.
David Vines: Tariffs will hit the UK, but appreciation of the dollar and buoyant USD demand will be good for the UK. But affect of uncertainty on the UK will be very large; on balance (very) negative.
Sonali Punhani: The risk of imposition of tariffs from the US present another big source of risk for UK growth. It is not clear if or when the US imposes tariffs on the UK. We assume a mild increase in US tariffs to the UK and somewhat heightened trade uncertainty in our forecasts, which lowers to a small degree our quarterly growth profile from Q2 2025 but keeps the annual numbers unchanged (at 0.9 per cent, 1.5 per cent, 1.4 per cent in 2024/2025/ 2026).
If we were to see more meaningful tariffs on the UK and globally, greater uncertainty and global slowdown, it would imply cuts to our growth forecasts. If tariffs are imposed, the direct impact on UK growth could be contained, given majority of UK exports to the US are services, with goods exports accounting for 32 per cent of UK’s trade to the US. UK goods exports to the US constitute 7 per cent of UK’s exports and 2.2 per cent of UK’s GDP.
The BoE calculates elasticity of 0.1-0.7 for UK exports to changes in price. Assuming an average elasticity of 0.4, a 10 per cent rise in tariffs can put 10 bps of UK growth at risk from a direct impact (assuming no currency offset). But we can’t rule out a bigger impact arising from higher trade uncertainty and softer global growth (potentially 20-40bp overall). In a speech, Kristin Forbes calculated that the impact of one standard deviation increase in uncertainty was estimated to be 40-50bp drag to growth after four quarters.
The impact of potential tariffs on inflation is less clear. While a tariff retaliation by the UK/ currency adjustment or trade restrictions can raise UK inflation somewhat in the first instance, risks are that lower growth/ higher uncertainty and potentially trade diversion away from the US could end up eventually being disinflationary for the UK.
Jack Meaning: It still remains unclear what the policies will be, let alone what impact they will have. Tariffs are likely to weigh on growth in the UK, predominantly though uncertainty and confidence effects. If tariffs are focused on goods — which would appear to be the plan — the impact on economic growth will probably be smaller than that for our European peers, or for the US itself. On inflation, assuming the UK does not retaliate and impose further tariffs, we would expect the impact to be limited, with a bias to disinflation. Slower world trade and growth should combine with imported disinflation from redirected goods trade from China to offset any direct inflationary impact from tariffs themselves.
John Llewellyn: If he does what he says he will do with respect to tariffs and tax cuts, Trump’s policies will increase US GDP, inflation, and strengthen the dollar next year, but then impel a reversal in the GDP and dollar effects — but not the inflation effects, which will continue.
Paul Hollingsworth and Dani Stoilova: We expect the net effect of the likely policies of the incoming US administration (we assume higher tariffs, deregulation, tax cuts, tighter immigration policy) to be a drag on economic activity both in the US and the rest of the world, while pushing up on US inflation. The impact on both the UK and rest of the world will ultimately depend on the extent, timing and sequencing of the policy changes, as well the response from other governments and firms. But overall, we think UK growth will be weakened — primarily through the impact on sentiment through the trade channel. That said, the UK should still perform better than European peers, not least because services exports make up a significant portion of the UK’s trade with the US. What’s more, we expect the BoE to continue with gradual rate cuts, despite the possible inflationary consequences of trade tariffs.