3rd Nov 2025 17:24
(Alliance News) - EY Item Club has lifted its forecast for UK economic growth in 2025 to 1.5%, supported by more than GBP1 trillion in public spending, though it warned that momentum will fade next year as fiscal tightening and potential tax rises weigh on activity, the Times reported on Monday.
The think tank, which uses the same economic modelling as the Treasury, had previously expected growth of 1.0% for 2025 but said the economy has "displayed greater momentum" in the first half of the year. UK output rose 0.7% during the period, the fastest pace among G7 economies.
According to the Times, the upgrade reflects the impact of increased government expenditure, with the Office for Budget Responsibility estimating total public spending of about GBP1.3 trillion over this fiscal year and last, roughly GBP100 billion higher than in 2023-24.
However, the EY Item Club warned that the effect of higher public spending will fade in 2026, when tighter fiscal policy and potential tax rises could slow growth.
It now expects GDP to expand by 0.9% next year before edging up to 1.3% in 2027.
"While the budget is expected to include measures to stimulate growth, meeting the government's current fiscal rules would also require some tax changes to be introduced in the coming tax year, and this is anticipated to weigh on growth," the think tank said.
The Times said Chancellor Rachel Reeves may need to raise up to GBP40 billion in new taxes to close a fiscal gap created by higher borrowing costs, a U-turn on GBP6 billion in welfare spending cuts, and an expected downgrade to productivity forecasts.
EY UK & Ireland Regional Managing Partner Anna Anthony told the Times that "the UK economy has shown encouraging resilience and momentum this year, particularly in the face of significant global disruption."
This marks the second upgrade to EY Item Club's UK growth forecast in 2025, following a revision in July from 0.8% to 1.0%.
By Eva Castanedo, Alliance News reporter
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