Business group slashes UK growth forecasts for the “long and challenging" year ahead

One of Britain’s leading business groups has slashed its forecast for economic growth in what it warns will be a “long and challenging year.” blaming higher tax and a looming global trade war .

The British Chambers of Commerce (BCC) blamed higher taxes and a looming global trade war for its downgrade. It now expects GDP to be just 0.9% higher by end of 2025, a sharp downgrade from its previous forecast of 1.3%.

Even the limited growth that is achieved this year will be driven by higher Government spending rather than a thriving private sector, the BCC warned in its latest quarterly economic forecast.

GDP is expected to rise in 2026 to 1.4%, but that is also slightly down from the previous forecast of 1.5%.

Inflation is now expected to stay above the Bank of England’s 2% target until the last quarter of 2027. Inflation is forecast to be 2.8% in the fourth quarter - up from 2.2% in the last forecast, before falling to 2.1% by the end of 2026.

The BCC said employers will struggle to invest in 2025, as they struggle to cope with rises in National Insurance and the minimum wage.

Business investment has also been revised downwards for 2025 to 0.6%, compared with 0.9% in the previous forecast. However picture is then expected to quickly improve, reaching 1.8% in 2026 and 2.0% in 2027.

The BCC also expects interest rates to come down only slowly as inflation stays above the target level. The Bank’s rate is forecast to be 4.25% by the end of 2025 before falling to 4% in 2026. No further cuts are then predicted through to the end of 2027.

David Bharier, BCC’s head of research, said: “Our downgrade to the economic outlook is reflective of the severe pressures piling up on businesses right now.

“UK firms are facing a double whammy of rising domestic taxation and a potential global trade war. Businesses are telling us that the rise in National Insurance and the minimum wage will increase costs, stall investment, and cause them to rethink their workforce plans.

“The specific impacts are yet to be fully seen. By April, when the changes come in, we may see more concrete action from firms. If they do start making redundancies, this could potentially reduce tax take. Rising tariffs and energy costs are also feeding into fears.

“In this environment, it is difficult to see where high levels of economic growth will come from. UK firms will need to see a reduction in both input costs and the barriers to global trade. The AI boom could also stimulate growth, but smaller businesses will need support in adoption.

Vicky Pryce, chair of the BCC Economic Advisory Council, said: “This is going to be a long and challenging year for UK businesses. The BCC’s forecast shows an economy struggling without the secure foundations to kickstart business investment.