As 2025 unfolds, the UK economy is poised for a period of modest growth, influenced by various factors including government spending, inflation trends, monetary policy, and global economic conditions. Here’s a 1 minute overview of the key trends and predictions shaping the UK’s economic landscape this year.

GDP Growth

According to EY, The UK’s GDP is projected to experience moderate growth in 2025. The EY ITEM Club forecasts a 2% increase, up from 1.8% in their previous estimate. However, Goldman Sachs offers a more conservative estimate of 1.2%, slightly below the Bank of England’s projection of 1.5%. This growth is expected to be driven primarily by increased government spending, which should boost wider economic activity and employment.

Inflation and Monetary Policy

Inflation is anticipated to follow a two-phase pattern in 2025. Early in the year, elevated energy costs and global trade frictions may push the headline rate above 3%. Subsequently, inflation is expected to gradually decline, returning to the target rate by the end of the year.

In response, according to KPMG, the Bank of England is likely to adopt a cautious approach, implementing a series of small interest rate cuts, potentially bringing the base rate down to 3.5% by year’s end.

Labour Market and Private Consumption

According to the Institute for Fiscal Studies, the labour market is projected to remain resilient, with stable employment rates contributing to economic stability. However, private consumption growth may be subdued, with an expected increase of only 0.6%, compared to the Bank of England’s baseline estimate of 1.5%. This suggests that while employment remains steady, consumer spending may be restrained due to factors such as rising living costs and modest wage growth.

Global Economic Context

On the international stage, the UK is expected to outperform some G7 economies, though it may still lag behind others like the US. Global growth, particularly in the US, along with gradual interest rate cuts, is forecasted to accelerate, providing a supportive backdrop for the UK’s economic performance. However, Financial Times predicts challenges such as persistent inflation and weak investment will present significant hurdles for the government’s spending and growth strategies.

Conclusion

In summary, the UK’s economic outlook for 2025 suggests a year of modest growth, influenced by increased government spending, a cautious monetary policy approach, and a complex global economic environment. While challenges persist, particularly concerning inflation and consumer spending, the economy is expected to navigate these with measured optimism.