17.11.2025
Economic growth in the United Kingdom is projected at 1.4% in 2025 after a stronger-than-expected first half, but momentum remains weak and private consumption subdued. Real GDP growth is forecast to soften to 1.2% in 2026, mainly due to a lower statistical carryover, before edging back up to 1.4% in 2027. Inflation rose temporarily in 2025 due to one-off factors, but is expected to fall progressively, reaching 2% in early 2027. The labour market is expected to continue softening, with unemployment hovering around 4.6-4.7%. The general government deficit is projected to remain high but to improve slowly, while gross public debt is expected to stay around 100% of GDP and rise modestly through 2027.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 1.4 | 1.2 | 1.4 |
| Inflation (%, yoy) | 4.0 | 2.4 | 2.2 |
| Unemployment (%) | 4.6 | 4.7 | 4.6 |
| General government balance (% of GDP) | -5.0 | -4.2 | -4.1 |
| Gross public debt (% of GDP) | 100.5 | 101.6 | 102.7 |
| Current account balance (% of GDP) | -2.5 | -2.7 | -2.7 |
Relatively strong growth in early 2025, but momentum remains weak
Real GDP growth surprised on the upside in 2025-Q1, supported by strong goods exports and an uptick in investment, but these drivers reversed in Q2 and growth moderated, with public consumption providing the main support. Private consumption remained soft and imports outpaced exports in the first half of the year, resulting in a modest negative trade contribution. High-frequency indicators have been mixed, pointing to continued weak momentum. Overall, GDP growth is projected at 1.4% in 2025, to soften to 1.2% in 2026 (mainly due to a lower carryover) and to edge back up to 1.4% in 2027. Public consumption and investment are expected to underpin growth in 2025 and 2026, before moderating in 2027, while private investment is projected to strengthen only gradually and goods export growth is expected to remain weak. Net trade is forecast to subtract from growth throughout the period.
The labour market continues to soften, with wage growth moderating
Labour market conditions have weakened, with vacancies falling and the unemployment-to-vacancy ratio rising. The unemployment rate increased compared with a year earlier and is projected to remain around 4½% over the forecast horizon. Nominal wage growth remains elevated but has slowed from earlier in 2025 and is expected to ease further as labour market slack increases.
Rise in inflation likely to be temporary
Headline inflation rose in mid-2025 due to one-off factors such as changes to administered prices, while underlying inflation measures have eased. Services inflation is expected to start subsiding as wage growth moderates. With monetary policy loosening only gradually, inflation is projected to fall progressively, reaching 2% in early 2027.
Public finances are expected to improve slowly
The fiscal stance is projected to continue tightening, with revenues rising as a share of GDP while expenditure remains broadly stable. The general government deficit is projected to fall in 2025 but remain high at close to 5% of GDP, before narrowing to just above 4% of GDP by 2027. General government gross debt is projected to be around 100% of GDP in 2025 and to rise modestly through 2027.
Risks are tilted to the downside
Key risks relate to the outlook for consumption given a still-elevated saving rate and rising tax burden, as well as uncertainty around inflation dynamics and the pace of monetary easing. Further fiscal tightening could also occur depending on upcoming budget decisions.
Source: European Commission. European Economic Forecast, Autumn 2025.
