London, November 30, 2025
The UK economy is showing signs of recovery in 2025, with major forecasting bodies upgrading growth projections after a challenging period marked by slowing activity in late 2024. Stronger-than-expected expansion in the first half of the year has prompted upward revisions reflecting improved momentum amid ongoing economic challenges.
The British economy grew by 0.7% in the first quarter and 0.3% in the second quarter of 2025, outperforming earlier estimates. Reflecting this acceleration, the EY ITEM Club has raised its annual growth forecast for 2025 to 1.5%, up from 1% in July. Similarly, the British Chambers of Commerce updated their projection to 1.3%, an increase from 1.1% earlier in the year. The International Monetary Fund (IMF) also estimates UK growth at 1.2% for 2025.
The rebound is primarily driven by increased government spending, which has been the main contributor to growth in the first half of the year. Monetary easing policies have supported private consumption, while rising consumer and business confidence have contributed positively to economic activity. The labor market remains resilient, sustaining income flows and demand.
Despite the improved short-term outlook, several challenges are expected to weigh on the medium-term trajectory. The government’s fiscal rules mandate a reduction in borrowing by up to £30 billion, necessitating tax rises or spending cuts that could restrain growth. Productivity gains remain weak compared to pre-2008 levels, limiting potential output. Global economic uncertainties and continuing trade disruptions add external risks. Business investment is subdued; forecasts have been downgraded to 1.6% growth amid rising operational costs and dampened business sentiment, partly due to recent national insurance increases.
Looking ahead, growth is projected to slow to approximately 0.9% in 2026 before modestly rebounding to 1.3-1.5% in 2027, according to consensus estimates from the Bank of England, National Institute of Economic and Social Research (NIESR), and the British Chambers of Commerce. The pace of recovery will depend on the effectiveness of structural reforms and improvements in productivity.
This upward revision signifies the UK economy’s resilience in navigating a difficult domestic and global environment. However, the path forward remains constrained by structural economic issues and fiscal tightening, which will require careful management to support sustained growth in the coming years.