BCC upgrades 2025 growth forecast but warns UK economy remains stuck in “first gear”
BCC upgrades 2025 growth forecast but warns UK economy remains stuck in “first gear”
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The British Chambers of Commerce (BCC) has upgraded its UK growth forecast for 2025 but warned that the overall economic outlook remains weak, with investment subdued, inflation stubborn and net trade continuing to weigh on GDP.
The organisation’s latest forecast revises GDP growth for 2025 up to 1.3% from 1.1%, reflecting better-than-expected performance in the first quarter, supported by public spending. Growth is then expected to slow to 1.2% in 2026 before rising to 1.5% in 2027, unchanged from previous forecasts.
Sector performance remains mixed. Construction is forecast to grow by 1.5% in 2025, revised up from 0.8%, while services are expected to expand by 1.3% and manufacturing by 1%.
The BCC warned that business investment remains far below previous expectations, forecasting growth of just 1.6% in 2025 – a sharp downgrade from 4.8% in its last forecast. The revision follows ONS data showing weaker investment trends and aligns with the downbeat sentiment in BCC’s business surveys.
Investment is projected to edge up to 1.9% in 2026 before recovering to 3% in 2027. The BCC said higher costs, particularly from the national insurance rise, were constraining firms’ appetite to invest.
Exports are expected to rise 3.1% in 2025, up from a previous forecast of 2.0%, helped by stronger-than-expected Q1 performance ahead of the introduction of US tariffs. However, imports are forecast to grow faster, by 4.4% this year, leaving net trade as a drag on GDP.
Net trade is projected to contract by -1.3% in 2025, -0.7% in 2026 and -0.9% in 2027, reflecting continued global uncertainties and trade frictions such as the removal of the US de minimis allowance for small exporters.
The BCC forecast suggests inflation will remain above the Bank of England’s 2% target for some time. CPI is expected to hit 3.7% by the end of 2025 before easing to 2.5% in 2026 and 2.1% in 2027.
Wage growth and the national insurance increase are expected to keep pressure on prices, with average earnings forecast at 4.3% by the end of this year.
Interest rates are predicted to remain at 4% for the rest of 2025, with only two cuts expected in 2026, bringing the rate down to 3.5% by the end of that year.
Unemployment is forecast to remain broadly stable at 4.7% in 2025 and 2026, easing slightly to 4.5% in 2027, as firms continue to weigh higher wage costs and tax increases against their hiring plans.
David Bharier, Head of Research at the British Chambers of Commerce, said: “Our latest forecast underlines the difficult reality facing UK businesses and shows that economic growth is stuck in first gear.
“GDP has been upgraded to 1.3% for this year, due to better-than-expected performance in Q1 supported by public spending. However huge uncertainties remain as firms assess the impact of NICs increases, new employment regulations, and yet more trade barriers.
“A net trade deficit will continue to weigh on growth going forward. Global trade tensions, ongoing conflicts, and the recent removal of the USA’s de minimis threshold for small exporters are acting as a drag anchor on exports.
“Inflation is also proving more stubborn than expected. Businesses face relentless cost pressures, from the NICs rise to higher wages and global tariffs. These factors are directly constraining investment, which we have revised down.
“The forthcoming Autumn Budget will be a pivotal moment. The Chancellor faces some tough decisions as more tax rises risk severely undermining sentiment and investment even further. Sustainable growth depends on driving productivity through modern infrastructure, a skilled workforce, and seizing the opportunities of the AI revolution.
“SMEs need the tools to invest, trade and expand. Without this, the UK risks being locked into a prolonged low-growth trap.”
Vicky Pryce, Chair of the BCC Economic Advisory Council, added: “While 2025 may be slightly better than forecast, the overall growth landscape for the UK in the next couple of years looks weak. The economy will continue to be buffeted by global headwinds, alongside ongoing worries about high bond yields.
“Government expenditure has bolstered the economy this year, but the spending taps are likely to be tightened very soon across Whitehall.
“The spectre of inflation is set to loom over the economy for some time to come, with consumers reluctant to spend. That’s likely to slow the path of interest rate cuts.
“Government long-term strategies are welcome, but firms can’t only exist on promises of tomorrow. They need help today to grow, recruit and compete.”
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