The UK economy began to recover in 2024, following a weak 2023. GDP grew at an above-trend rate over the first half of this year but then eased down a gear in Q3. We project that the UK economy will grow by 0.9% over 2024 as a whole, a marginal downgrade compared to our June forecast (of 1.0%).
We continue to expect that economic activity will pick up steam over 2025; however, we now expect growth to be somewhat slower than previously forecast. Specifically, GDP is projected to increase by 1.6% over the year, which marks a downgrade from June’s forecast (of 1.9%). The UK economy then maintains a steady, but unimpressive, pace of growth in 2026, at 1.5%.
The measures announced in the Autumn Budget have resulted in changes to the composition of growth over our forecast. Government spending and investment are expected to expand to a greater extent than previously expected, while higher employment costs and the crowding out of private sector activity will weigh on household spending and business investment.
Growth in consumer spending has been relatively restrained over much of 2024, partly reflecting cautious behaviour following recent economic shocks. We still expect households to increase spending over 2025, but to a lesser extent than in June. This is due to real incomes growth being dragged back by higher inflation, following the net fiscal loosening in the Autumn Budget. Consumption growth then slows slightly over 2026, as incomes growth eases further.
Business investment is now expected to have grown over 2024, primarily reflecting historical data revisions. We expect capex growth to pick up in 2025 (as GDP growth improves), but it then eases slightly in 2026. Despite a firmer outlook, our forecast for investment is weaker than what we would have expected before the Budget, reflecting the drags from higher employment costs and crowding out from government investment.
We project that productivity (output per worker) will lag slightly behind its lacklustre pre-pandemic trend through 2026. This weak outlook underlines the need to turbocharge growth and improve the UK economy’s competitiveness.