Economic expansion in the UK might be delayed for a period of two years, according to a warning from a report.
Fresh Take:
A looming economic storm might hit the UK with a two-year delay, according to the EY ITEM Club's forecast. The cocktail of headwinds includes Donald Trump's trade war, persistent inflation, and a slump in confidence among households and businesses due to global turmoil.
The forecast predicts a growth of 0.8% this year, down from the 1% expected back in April. For 2026, the predicted growth stands at 0.9%, a downgrade of 0.6 percentage points. These numbers are less than inspiring, particularly considering they're lower than the International Monetary Fund's recent downgrades.
The chancellor has faced criticism for implementing tax increases on businesses, while households grapple with rising bills for energy, water, and council tax. These factors are putting a drag on spending power.
The EY ITEM Club warns that the poor global economic environment and uncertainty will weigh heavily on both families and businesses. Consumer sentiment remains "cautious" as household budgets face continued pressures.
The services-led UK economy is projected to grow this year, but the cloudy global landscape is unsettling for businesses, leading to lower levels of investment in the short term. However, interest rate cuts may gradually improve business and household spending over time.
Anna Anthony, regional managing partner for EY UK & Ireland, believes that these turbulent times will postpone the UK's return to more moderate growth levels. Despite the challenges, there are small rays of hope. As a services-focused economy, the UK could leverage its stability and attractiveness for investment as global markets continue to swing wildly.
Bonus Facts:- The widespread imposition of a 10% tariff on imports from most countries and 25% duties on UK-produced steel, aluminium, and cars could hit the demand for UK exports. Around 16% of all goods shipped overseas go to the United States, but weaker demand for exports is likely to decrease this number.- The unpredictable global market is translating into lower levels of business investment over the short term. This is partly due to business thriving on certainty, but interest rate cuts may gradually bolster business and household spending over time.- The IMF/World Bank meetings were a platform for Chancellor Rachel Reeves to express her concerns about the profound impact of global trade uncertainty on the UK economy. The UK-US goods trade deficit, at £2.2bn in 2024, highlights the vulnerability to tariff-driven disruptions.
- The EY ITEM Club warned in their forecast that the gradual impact of the ongoing trade war initiated by Donald Trump, coupled with other factors, will postpone the economic recovery of the UK until 2025.
- The economic storm, initially predicted to hit the UK in 2023, might instead arrive in 2025 due to the escalating trade war and other economic headwinds.
- In the h3 line, the EY ITEM Club emphasized the need for the United Kingdom to prepare for a more cautious economic environment in 2025, as both families and businesses deal with the ramifications of the delayed economic storm.
- The looming global economic uncertainty and potential trade war-induced tariffs could decrease the demand for UK exports by 2025, according to the Bonus Facts section, which would further contribute to the economic slowdown predicted by the EY ITEM Club.
