Rachel Reeves is set for yet another blow as new growth forecasts have once again poured gloom on the British economy.
Leading UK economic forecaster EY Item Club is the latest organisation to predict bad news for the Chancellor.
Having previously said UK GDP will grow by 1.5% this year, it has now cut this to just 1%.
This would be just a tiny uptick on the 0.8% growth it believes Britain achieved in 2024 and comes after a very poor second half of the year in which Ms Reeves was accused of talking the economy down.
EY predicts Britain will grow faster in 2026, at 1.6%. However, this is much lower than Ms Reeves’s target of the fastest growth in the G7.
Anna Anthony, EY UK regional managing partner, said: “Despite the subdued finish to 2024, there are signs the UK economy could turn a corner and achieve stronger levels of growth this year.
“Following a prolonged period of financial uncertainty, we should start to see an improvement in consumer confidence as real wages continue to increase, with many households feeling less of a financial squeeze by the end of 2025.
“The outlook for UK business is more of a mixed picture.
“While business investment is set to increase, tightening financial conditions and global trade uncertainty are expected to weigh on private sector confidence in the first half of this year.”
In a further blow, the forecasters say Britain’s inflation rate for the year will average 2.8%, much higher than the Bank of England target of 2%.
They suggest this will also be a mess of Ms Reeves’ making, as producers pass on the cost of the upcoming National Insurance hike on to customers.
Just last week, Morgan Stanley also slashed its growth forecast for Britain, cutting it from 1.3% in 2025 to just 0.9%.
Many are now suggesting Ms Reeves is on course to preside over a technical recession, sparked when there are two consecutive quarters of negative growth.
The CBI has warned that British businesses are braced for a “significant fall” in trading and there is now “widespread pessimism”.
While Ms Reeves announced a number of major infrastructure changes in a speech last week aimed at boosting economic growth, critics say these policies will not improve the economy for years.
The decision to expand Heathrow Airport, by far the most politically controversial announcement in the Chancellor’s speech, could boost GDP by just 0.43% by 2050.
The Oxford-Cambridge “growth corridor”, the plan to join up the two major university towns with new transport links, will have more of an effect on GDP, by around 1% by 2035.
This weekend, it was revealed that Ms Reeves’ “Budget for Growth” last year resulted in the largest increase in businesses closing down since the coronavirus lockdowns.
About 4,500 companies shut up shop from October to December last year, the worst month of voluntary liquidations since the fourth quarter of 2020-21.
Conservative Shadow Chancellor Mel Stride said: “The biggest barriers to growth in this country are Rachel Reeves, Keir Starmer and their job destroying budget”.
“The forecasts showing the UK economy will grow slower than predicted is a direct result of Labour’s budget, their punishing jobs tax and companies being crushed under Labour’s huge increase of new regulations.
“Unfortunately for millions of people up and down the country a vast amount of damage has now been done. Their budget has killed growth stone dead. Under new leadership, the Conservatives will hold Labour to account for their economic mismanagement and set out a clear plan to return growth our country.”
