UK (Parliament Politics Magazine) – The EY Item Club forecasts that the UK economy will grow just 0.9% next year amid tax hikes, falling investment, and business confidence at -74.
As reported by The Guardian, a leading consultancy warns UK growth is expected to be under 1% next year as tax rises and falling investment weigh on the economy.
What did EY Item Club say about the UK growth forecast for 2026?
Ahead of the upcoming 26 November budget, the EY Item Club says UK economic growth will be sluggish next year, reducing tax receipts and limiting fiscal flexibility.
The Office for Budget Responsibility is expected to lower Britain’s potential growth estimate on budget day amid revised productivity forecasts.
OBR officials may slash projected productivity growth by 0.3 percentage points, costing the government £21bn before parliament ends.
The EY Item Club said it expects 1.5% growth this year, up from 1% in July, with UK economic growth forecast at 0.9% in 2026.
Growth climbed this year with a 3.7% boost from business investment, though 2026 is predicted to fall to 0.8%.
Unemployment is set to peak at 5% next summer, which will
“drive a further slowdown in earnings this year, with pay growth expected to fall back to around 3.5% by the end of 2025 and 3% by the middle of 2026.”
Matt Swannell, the club’s chief economic adviser, stated,
“The combination of potential tax rises, global trade disruption and high interest rates is still anticipated to put a brake on economic momentum and produce modest growth over the next year.”
Anna Anthony, a managing partner at EY, said Britain’s economy remained resilient and maintained momentum amid significant global disruptions.
She called on Chancellor Rachel Reeves to “strike a balance between managing the deficit and measures that stimulate growth” to sustain economic progress through challenges.
Ms Anthony added,
“The UK has remained a competitive, stable investment destination during a period of international disruption, and preserving that attractiveness and welcoming global capital will be crucial to the UK’s long-term economic prosperity.”
What did the IoD survey show about UK growth and business confidence?
A recent survey by the Institute of Directors shows Britain’s growth is set to slow next year following a sharp decline in business confidence.
The group revealed that business leaders’ optimism hit a record low of -74 in September and edged up slightly to -73 by October.
What did Anna Leach say about the business outlook?
The IoD’s Anna Leach said businesses anticipate tough times ahead due to the autumn budget.
She said,
“Business leaders are worn out from the past year’s rollercoaster of uncertainty and tax increases.”
Ms Leach added,
“We hear repeatedly of the effects: planning horizons shortened, hiring cancelled or outsourced, and discretionary spend on hold. Businesses need certainty over their costs – both tax and regulatory.”
What did Mel Stride say about business confidence?
Shadow Chancellor Mel Stride warned business confidence was “shattered” by Labour’s choices, not global shocks.
He added,
“Month after month, it’s the same story: uncertainty and speculation. Businesses are stalling on hiring and investment because they simply don’t trust Labour to keep their word.”
What did Rachel Reeves say about UK economic forecasts?
Rachel Reeves insists Britain does not need to accept grim economic forecasts ahead of next month’s Budget.
The chancellor warned that OBR productivity forecasts could signal tough times ahead.
She said austerity, Brexit, and the pandemic left lasting “deep scars” on Britain’s economy.
Ms Reeves said the government is “determined not to accept forecasts but to defy them” and would not “relitigate the past or let mistakes shape the future.”
The chancellor added, “Our independent forecaster is likely to downgrade the forecast for productivity in the UK, based not on anything this government has done but on our past productivity numbers, which, to be honest, since the financial crisis and Brexit, have been very poor.”
Which taxes are expected in the UK’s November budget?
The UK November 2025 budget is expected to increase income tax rates, possibly a 1–2 percentage point rise in the basic and higher rates, aiming to raise around £8 billion annually.
The budget may hike taxes on LLPs like lawyers and accountants, and raise levies on gambling, sugar, tobacco, and alcohol to boost revenue.
