National Institute UK Economic Outlook Winter 2025 – Summary

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National Institute UK Economic Outlook, 2025, issue 17, 5-6

Abstract: We forecast GDP growth of 1.5 per cent in 2025. This is driven by a significant rise in government consumption from the budget, coupled with continued growth in business investment. We forecast inflation to rise to 3.2 per cent in January, before falling slowly back to target, and to average 2.4 per cent in 2025. As wage growth gradually cools in 2026, we expect that inflation will return to the Bank of England's 2 per cent target on a lasting basis. We anticipate just two rate cuts in 2025. Persistent wage growth this year, amid an expansionary fiscal policy and exchange rate depreciation, will all act to limit the scope for monetary loosening this year. The government is on track to meet its new fiscal rules. However, the planned fiscal expansion leaves no remaining headroom by the end of the parliament. This could limit the government’s ability to respond to shocks if tax and spending plans remain unchanged.

Date: 2025
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