- UK GDP growth gained momentum in the first quarter of this year, following a sluggish performance in the latter half of 2024, with broad-based growth across sectors and resilience in retail sales.
- More timely economic indicators, however, highlight growing caution among businesses and consumers, with rising operating costs for businesses and elevated levels of uncertainty weighing on corporate and consumer spending. The latest Deloitte CFO survey shows that prior to recent developments in global trade, finance leaders were expecting UK corporates to cut capex, discretionary spending and hiring over the next 12 months. Businesses took their most defensive position since the pandemic.
- The Bank of England cut interest rates by 0.25 percentage points to 4.25% in May and signalled a gradual approach to further rate cuts this year. The Bank noted that current global trade policy developments are likely to weigh down on UK GDP growth, forecasting that the UK economy will growth by 1.0% this year.
- Inflation is slightly above the Bank of England’s 2% target. It expects inflation to peak at 3.7% in the third quarter of 2025, due to rising household energy bills.
- In March's Spring Statement, the Chancellor announced cuts to sickness and disability benefits, reductions in other government spending, and improvements in tax compliance. Without these measures, the government's fiscal rules would have been broken due to higher borrowing costs and a lower economic growth outlook.
- The Office for Budget Responsibility now forecast growth in 2025 of 1.0%, half its October estimate. This may be affected, however, by global geopolitical events such as higher tariffs imposed against UK exports. Adverse geopolitical shocks could also impact the government's very limited headroom.
- Growth in day-to-day public spending will support UK growth this year, funded through greater government borrowing and higher taxes, mainly shouldered by corporates, that were announced last October.
- The NHS is set to receive the bulk of the increased spending but many ‘unprotected’ departments still face real-terms cuts in expenditure.
- Despite higher taxes, government debt is expected to remain at a high level throughout the parliament.
- Timing: decisions based on the government’s multiyear spending review are now expected to be announced in June.
Overall Landscape
Fiscal policy
Fiscal policy
Last updated: 16/05/2025
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