UK economy to grow 1.1% in 2025 & 1.2% in 2026: BCC

Better-than-expected business investment in the first quarter this year (Q1) is forecast to boost gross domestic product (GDP), but the economy will remain sluggish, it said.

Increased government spending is another contributor to growth. GDP is expected to rise in 2026 to 1.2 per cent, but that is slightly down from the last forecast (1.4 per cent). Growth in 2027 is forecast to be 1.5 per cent.

The UK manufacturing sector is expected to grow by 0.5 per cent this year, revised up from a decline of 0.2 per cent in the previous forecast.

With businesses facing increased cost pressures, consumer price index-based (CPI) inflation is forecast to be higher this year, reaching 3.2 per cent by Q4 2025 (up from 2.8 per cent in the Q1 forecast). It is then expected to fall to 2.2 per cent by the end of 2026 and 2 per cent in Q4 2027.

Unemployment is expected to be 4.6 per cent throughout 2025, with the increase in national insurance contributions likely to slow hiring intentions.

Business investment across 2025 is projected to be 4.8 per cent—a significant upgrade from 0.6 per cent in the last forecast. However, investment is expected to be focused in a smaller number of sectors like manufacturing and financial services.

BCC survey data has consistently found that the majority of small and medium enterprises (SMEs) are not increasing their investment, with tax increases acting as a major barrier.

After some recent positive trade developments, with the United States , EU and India, UK exports are projected to grow by 2 per cent in 2025, (an upward revision from a 0.5-per cent drop in the last forecast), 2.1 per cent in 2026 and 2.4 per cent in 2027. 

However, UK imports are expected to grow by 3 per cent this year (compared with 0 per cent in the previous forecast), before falling to 1.2 per cent in 2026, and then 2.6 per cent in 2027. This means net trade continues to contract, with figures of minus 1.2 per cent in 2025, minus 1.1 per cent in 2026 and minus 1.2 per cent in 2027. 

However, major uncertainties remain on the global trade outlook due to the potential for short term changes in policy leading to behavioural shifts among importers and exporters to manage the changes, BCC said in a release.

Average earnings in the country are expected to remain significantly above inflation this year, reaching 4.2 per cent by the end of Q4, putting further cost pressures on businesses. The forecast suggests annual wage growth will remain elevated in the coming years, falling only very gradually to 4.1 per cent in 2026 and 4 per cent in 2027. 

ALCHEMPro News Desk (DS)