Box A: How Have the UK Economy and Our Forecasts Evolved Over 2025?

National Institute of Economic and Social Research ()

National Institute Economic Outlook, 2026, issue Winter, 21-23

Abstract: In our Autumn 2024 forecast, published in November, we expected GDP growth of 1.2 per cent in 2025 and CPI inflation to average 2.3 per cent. We also forecast real wage growth of 2.2 per cent, implying a continued recovery in living standards. Against that backdrop, we anticipated a gradual easing of monetary policy, beginning with a 25‐basis-point cut in November 2024 and Bank Rate falling to 4.0 per cent by the end of 2025. On the fiscal side, the October 2024 Budget combined increases in spending on public consumption and public investment, tax rises ‐ including Employer NICs, Capital Gains Tax (CGT), Stamp Duty, and continued freezing of income tax thresholds ‐ and increased borrowing. This amounted to an expansionary Budget, enabled by a change in the fiscal rules that made Public-Sector Net Financial Liabilities (PSNFL) the target for debt stabilisation rather than Public Sector Net Debt (PSND). In this box, we assess how the economy evolved relative to that forecast, how our views changed over the year, and what these forecast errors reveal about the underlying economic drivers.

Date: 2026
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