Budget will hurt UK wage growth, Goldman Sachs warns

UK consumer spending is set to slump next year and dent UK growth, analysts at Goldman Sachs have warned, as the impact of the Budget ripples through the economy.

The rise to employers’ national insurance (NI) contributions will lead to slower wage growth for staff and higher costs for consumers, the investment bank wrote in a note to investors.

“We expect consumer spending growth to moderate in [the second half of] next year, as real disposable income growth falls back,” analysts at the bank wrote. “This partly reflects slowing real wage growth; we expect private sector pay increases to cool, partly because of the employer NI increase being passed onto consumers.”

The intervention from the bank follows weeks of dire warnings from businesses and industry bodies, and comes just days after analysts at rival lender Deutsche Bank warned that Chancellor Rachel Reeves’ decision could cost the economy over 100,000 jobs.

Goldman also warned that the effect of the employer NI hike would be amplified by the higher net payments that homeowners can expect to have to pay for their mortgages.

The bank added that workers’ disposable incomes will be dented further still by the continued freeze to income tax thresholds, meaning as wages rise with inflation, an ever increasing number of people are sucked into higher income tax bands.

Income tax thresholds have been frozen since 2021, when then-Chancellor Rishi Sunak announced income tax and the personal allowance would remain at the same level for four years.

The move has resulted in a phenomenon known as ‘fiscal drag’ for the last three years, but Chancellor Rachel Reeves announced at last month’s Budget that she would end the end threshold freeze in 2028-9.

Taken together, the moves would weigh on the UK’s overall economic output in the second half of 2025, the analysts said.