The EY Item Club has revised down its forecast for UK economic growth due to ongoing trade disruptions linked to newly imposed U.S. tariffs. The economic forecaster now projects UK GDP will grow by 0.8% in 2025, down from its previous estimate of 1.0%. The 2026 forecast has also been lowered to 0.9%, compared to an earlier prediction of 1.6%.
The tariffs, which include a 10% baseline tax on UK imports and a 25% tariff on aluminium, steel, and cars, are expected to weigh on business and consumer confidence. The EY Item Club anticipates reduced demand for goods and services, particularly in sectors heavily exposed to U.S. trade.
“Businesses thrive on certainty, so it’s unsurprising that an unpredictable global market is translating into lower levels of business investment over the short term,” said Anna Anthony, UK & Ireland managing partner at EY.
The United States is a significant market for UK exports, accounting for around 16% of the country’s goods exports. EY noted that even if further tariffs are not implemented, continued trade tensions could indirectly affect UK growth by impacting the broader global economy.
The International Monetary Fund (IMF) also recently adjusted its UK forecast, expecting growth of 1.1% in 2025, down from 1.6%. UK exports are now projected to decline by 0.5% in 2025 and by 0.4% in 2026.
Despite these revisions, EY highlighted some positive indicators. The UK’s services sector is expected to continue growing, and anticipated interest rate cuts may support consumer and business spending. The firm expects the Bank of England to reduce rates to 3.75% by the end of 2025 and to 3.5% in early 2026.
Inflation is forecast to exceed 3% through most of 2025, before easing to 2.4% in 2026.
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