UK Growth Forecast Slashed for 2025, But Later Years See Upgrades

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The Office for Budget Responsibility (OBR) has halved its economic growth forecast for 2025 to 1%, down from the 2% projection made in October 2024, Chancellor Rachel Reeves announced in her Spring Statement on 26 March 2025.

The downgrade reflects heightened global uncertainty, structural weaknesses, and cyclical pressures like elevated energy costs and interest rate expectations.

Key Forecast Adjustments

• 2025: Growth cut to 1%, with one-third attributed to structural issues and two-thirds to temporary factors like energy prices and uncertainty.

• 2026–2029: Upgraded projections average 1.8% annual growth, rising to 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029. Cumulative growth by 2029 is now forecast at 9.4%, up from 9.2% in October.

Inflation and Fiscal Outlook
Inflation is expected to hit 3.2% in 2025 (up from 2.6%) but align with the Bank of England’s 2% target by 2027.

The budget deficit is projected to narrow from £36.1bn in 2025/26 to a surplus of £9.9bn by 2029/30.

Government Response
Reeves expressed dissatisfaction with the 2025 figures but emphasized long-term reforms, including infrastructure projects (e.g., Heathrow’s third runway), pension system changes, and regulatory reductions.

The OBR noted later-year upgrades hinge on easing monetary policy and reduced uncertainty.

Broader Context
The revision aligns with OECD downgrades for G7 economies, underscoring shared global challenges.

While near-term growth faces headwinds, the OBR’s upgraded medium-term outlook suggests cautious optimism if structural reforms take hold.

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