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      UK forecast update

      August 2025

      A better-than-expected start to 2025 fuels stronger growth this year. However, accelerating inflation may pose a challenge to the Bank of England’s rate cutting cycle.


      UK forecast update – August 2025

      Source: ONS, KPMG forecasts. GDP, consumer spending and investment are all measured in real terms. Average % change on previous calendar year except for unemployment rate, which is average annual rate, while interest rate represents level at the end of calendar year. Investment represents Gross Fixed Capital Formation, inflation measure used is the CPI and the unemployment measure is LFS.


      UK economic outlook

      April 2025

      • An uncertain trading environment and a rising tax burden pose downside risks to UK economic growth this year.
      • While healthy household saving buffers and strong public spending should support economic performance, the imposition of broader tariffs could reduce UK GDP growth to 0.8% in 2025 and 2026.
      • Inflation is expected to peak at around 3.6% by the Autumn as businesses seek to pass on some of the increase in labour costs and consumers face higher utility bills, before returning to the Bank of England’s target of 2% by mid 2026.
      • Interest rates are expected to remain above the neutral rate while the MPC gradually eases monetary policy, with three more cuts pencilled in for 2025 and an additional two cuts in 2026.
      • Rising labour costs and weak business sentiment have seen a weaker labour market and are expected to ease pay pressures, while unemployment may rise only marginally.
      • The Chancellor faces a significant challenge to adhere to her fiscal rules while pursuing a growth agenda. The fiscal headroom remains tight with the risk of downgrade to the forecast high.

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      UK Economic Outlook - April 2025

      In our latest UK Economic Outlook we look at the prospects for the UK economy for 2025 and 2026, including our analysis of growth prospects, consumer spending, trade, inflation, interest rates, the labour market and public sector finances.