The latest British Chambers of Commerce (BCC) economic forecast has upgraded growth expectations for 2025. But overall, the outlook remains subdued. The forecast shows:
- GDP growth in 2025 revised up to 1.3% (from 1.1% in the previous forecast) GDP forecast for 2026 and 2027 remains unchanged at 1.2% and 1.5%.
- Business investment is expected to grow by only 1.6% this year and will remain subdued across 2026, rising only by 1.9%.
- Net trade will continue to weigh on GDP, with exports projected to increase by 3.1% in 2025 and 3.3% in 2026, while imports are expected to rise 4.4% this year and then slow to 1% in 2026.
- The inflation rate is forecast to hit 3.7% in Q4 2025, before easing to 2.5% by the end of 2026.
- The interest rate is expected to remain at 4% for the rest of 2025 and fall to 3.5% by the end of 2026.
UK Economic Outlook
The UK economy is expected to grow by 1.3 per cent in 2025, revised up from the previous forecast of 1.1 per cent . This upgrade reflects better-than-expected economic performance in Q1, supported by public spending. However, GDP is expected to slow slightly in 2026 to 1.2 per cent , before rising to 1.5 per cent in 2027 – unchanged from the previous forecast. The growth picture varies significantly across sectors. Construction is expected to be the best performing sector this year, growing by 1.5 per cent , revised up from 0.8 per cent . Meanwhile, services are forecast to grow by 1.3 per cent , and manufacturing by 1 per cent.
Business investment to remain weak
Business investment across 2025 is projected to be 1.6 per cent – a significant downgrade from 4.8 per cent in the last forecast. This is due to subsequent downward revisions on investment estimates by the ONS to a level more consistent with the weaker business sentiment seen in BCC business surveys. Investment plans across the majority of SMEs remains subdued due to increased costs, most notably the national insurance rise Business investment is then forecast to rise slightly to 1.9 per cent in 2026 and recover to 3 per cent in 2027
Export growth won’t improve net-trade
Exports across this year are projected to rise by 3.1 per cent (an upward revision from 2.0% in the last forecast). The upgrade is reflective of stronger than expected performance in Q1 ahead of the introduction of US tariffs. However, exports will remain modest overall, in the face of continued global uncertainties and trade frictions, such as the removal of the US de minimis allowance. Exports are forecast to grow by 3.3 per cent in 2026 and 3.2 per cent in 2027.
Imports are expected to grow by 4.4 per cent this year (compared with 3% in the previous forecast), before falling to 1 per cent in 2026, then up to 3.3 per cent in 2027. This means Net trade continues to contract, with figures of -1.3 per cent in 2025, -0.7 per cent in 2026, and –0.9 per cent in 2027.
Inflation to remain stubbornly above BoE target
The BCC forecast suggests inflation will remain a thorn in the side of the UK economy, with CPI at 3.7 per cent by the end of this year (revised up from 3.2%). The National Insurance increase, wage growth and global trade tensions continue to create business price pressures. CPI is expected to ease to 2.5 per cent by the end of 2026, and then 2.1 per cent in Q4 2027.
No further interest rate cuts this year
Given a pick-up in inflation, further reductions in the interest rate are unlikely – leaving the base rate at 4 per cent by the end of 2025. Only two cuts are projected next year due to the persistence of price rises. The interest rate is expected to fall to 3.5 per cent by the end of 2026 and then remain there to the end of 2027.
Average earnings will continue to outpace inflation
Average earnings are expected to remain significantly above inflation this year, reaching 4.3 per cent by the end of Q4 (up from 4.2% in the last forecast). That’s likely to add further inflationary pressure to the economy. The trend for the next few years remains the same as previously forecast, with wage growth of 4.1 per cent in 2026 and 4 per cent in 2027.
Unemployment to remain relatively static
The forecast suggests unemployment will remain broadly unchanged at 4.7 per cent this year compared with 4.6 per cent in the Q2 forecast. With wage growth and the NI hike continuing to impact the hiring appetite of firms, unemployment is expected to end 2026 at the same level of 4.7 per cent. The forecast suggests the rate will ease slightly to 4.5 per cent in 2027.
David Bharier, Head of Research at the British Chambers of Commerce said:
“Our latest forecast underlines the difficult reality facing UK businesses – and shows that economic growth is stuck in first gear.
“GDP has been upgraded to 1.3 per cent for this year, due to better-than-expected performance in Q1 supported by public spending. However huge uncertainties remain as firms assess the impact of NICs increases, new employment regulations, and yet more trade barriers.
“A net trade deficit will continue to weigh on growth going forward. Global trade tensions, ongoing conflicts, and the recent removal of the USA’s de minimis threshold for small exporters are acting as a drag anchor on exports.
“Inflation is also proving more stubborn than expected. Businesses face relentless cost pressures, from the NICs rise to higher wages and global tariffs. These factors are directly constraining investment, which we have revised down.
“The forthcoming Autumn Budget will be a pivotal moment. The Chancellor faces some tough decisions as more tax rises risk severely undermining sentiment and investment even further. Sustainable growth depends on driving productivity through modern infrastructure, a skilled workforce, and seizing the opportunities of the AI revolution.
“SMEs need the tools to invest, trade and expand. Without this, the UK risks being locked into a prolonged low-growth trap.”
Commenting on the forecast, Vicky Pryce, Chair of the BCC Economic Advisory Council, said:
“While 2025 may be slightly better than forecast, the overall growth landscape for the UK in the next couple of years looks weak. The economy will continue to be buffeted by global headwinds, alongside ongoing worries about high bond yields.
“Government expenditure has bolstered the economy this year, but the spending taps are likely to be tightened very soon across Whitehall.
“The spectre of inflation is set to loom over the economy for some time to come, with consumers reluctant to spend. That’s likely to slow the path of interest rate cuts.
“Government long-term strategies are welcome – but firms can’t only exist on promises of tomorrow. They need help today to grow, recruit and compete.”
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