Prime Highlights:
The UK economy is forecasted to grow by 1.5% in 2025, up from the previous estimate of 1.2%, driven by increased public spending.
NIESR warns that US tariffs, particularly on steel imports, could slow growth to 1.3% or less if UK businesses are directly impacted.
63% of UK manufacturers exporting to the US expect to be affected by new tariffs, raising concerns over costs and global demand.
Key Background:
The UK economy is projected to expand by 1.5% in 2025, buoyed by an increase in public spending following the latest budget, according to the National Institute of Economic and Social Research (NIESR). This marks an upward revision from the previously predicted 1.2% growth. However, NIESR has warned that the economic outlook could be jeopardized if US President Donald Trump follows through on proposed tariffs, especially the 25% levy on steel imports set to begin in March, which could ripple through the UK economy.
The imposition of these tariffs could push inflation higher, thereby escalating costs for UK businesses, especially manufacturers exporting to the US. According to a survey by the British Chambers of Commerce (BCC), 63% of UK firms exporting to the US anticipate being directly impacted by the tariffs. The increased costs could also contribute to a fall in the value of the pound, leading to higher import costs and further inflationary pressures.
While NIESR maintains that the UK economy will continue to grow at a steady pace, it cautions that the global economic climate remains uncertain due to trade protectionism. The thinktank forecasts global economic growth will remain stagnant at 3.2% in 2025, which could further limit the UK’s growth potential.
Additionally, the Bank of England’s monetary policy is expected to keep interest rates relatively high for longer than anticipated. NIESR predicts a modest rate cut in 2025, with the rate falling to 4.25% in the second quarter of the year. This contrasts with market expectations of more aggressive rate cuts, highlighting the ongoing uncertainty about the future economic trajectory. Despite these challenges, NIESR remains optimistic about certain aspects of the UK economy, including higher tax receipts and wage growth, which are expected to contribute to a 1% increase in economic growth per person. However, pressures on inflation and the global economic environment could dampen overall growth prospects.
