CBI downgrades forecast for UK economy after Budget

The UK economy is set for slower than expected and “unimpressive” growth in 2025 thanks partly to punitive measures introduced in October’s Budget, a leading business group has predicted.

The Confederation of British Industry (CBI) now expects Britain’s economy to grow by just 1.5 per cent next year, it said in its latest economic forecast, a sizeable downgrade from the 1.9 per cent it predicted for the year in June.

The weaker outlook partly reflects the toll that measures in the Chancellor’s maiden Budget will have on firms and consumers, with the CBI citing the higher employment costs businesses will face in light of the minimum wage rise and hike to employers national insurance contributions.

It added that the £70bn of additional public sector spending announced by the Chancellor in October will also crowd out private sector investment in, further dampening its expectations for the UK economy. In 2026, the lobby group expects there to be two per cent – or £6bn – less business investment than it had predicted in June, mostly because of the rapid splurge of government spending the government plans next year.

The industry body, the UK’s largest, now expects UK gross domestic product (GDP) growth to come in at 0.9 per cent, marginally lower than the one per cent it forecast half a year ago.

Following next year’s forecast of 1.6 per cent growth it expects GDP to rise by 1.5 per cent in 2026.

The CBI said that the uptick in economic growth anticipated in 2025 will mostly be down to higher household spending, as monetary conditions become looser and the economic shocks from the pandemic and energy crisis move into the rear-view mirror. It expects the Bank Rate to be cut to 3.5 per cent at the start of 2026.

“The government’s focus on stability is welcomed by businesses of all sizes as a vital pre-condition for growth,” said Louise Hellem, the chief economist at the CBI.

“But with consumers and businesses continuing to feel the squeeze, there is work to be done to get momentum back into the economy.”

The CBI’s decision to revise down its forecast for private investment in the UK economy will be a particular blow to the Chancellor, who has regularly argued that additional public sector investment through flagship initiatives like GB Energy and the National Wealth Fund will do the opposite and ‘crowd in’ private capital.

Hellem added: “Measures in the Autumn Budget will increase firms’ costs at a time when their profit margins have already been under pressure.

“Many businesses have told us that these measures will likely push up prices and weigh on their hiring and investment plans going forward.”

The CBI’s chief executive, Rain Newton-Smith, has been particularly critical about the employer national insurance reforms, which comprised a cut to the threshold at which payments kick in as well as a rise to the overall rate employers will pay.

Speaking at the body’s recent annual conference, she said that “tax rises like this must never again simply be done to business”.