UK economic growth could be “postponed” for two years amid a toxic cocktail of headwinds for confidence, according to a respected forecast which says further interest rate cuts may help lift the mood.
EY ITEM Club, which uses the Treasury’s economic modelling, downgraded expectations for output in both 2025 and 2026 in its latest report.
It warns of a direct hit from Donald Trump‘s trade war and from persistent high inflation in the UK economy.
But the forecast says the biggest impact would come from weaker sentiment among both households and businesses, given the surge in uncertainty and hits to global growth caused by the imposition of tariffs.
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A “baseline” 10% tariff on imports from most countries around the world is in place while UK-produced steel, aluminium and cars are subject to duties of 25%.
Around 16% of all goods shipped abroad head for the United States typically but the study said that weaker demand for exports would likely hit that number.
It forecast UK growth of 0.8% this year – down from the 1% it expected three months ago – and a figure of 0.9% for 2026.
That last figure represented a downgrade of 0.6 percentage points.
These are not the numbers the Treasury will want to see, coming in even lower than the International Monetary Fund’s downgrades last week, as it leads work on the government’s stated priority of securing economic growth.
It has been accused of an own goal through the chancellor’s tax increases on business, which came into effect at the beginning of this month.
At the same time, households are grappling a surge in…
