Tax rises and drop in investment predicted to limit UK growth

"The prospect of looming tax rises and a fall in business investment will restrict the UK's economic growth rate next year to less than 1%, according to a health check of the economy by a leading consultancy. With less than four weeks before Rachel Reeves delivers her budget on 26 November, the EY Item Club has downgraded Britain's growth for next year, indicating that the economy will continue to expand at a sluggish pace, limiting tax receipts and the chancellor's financial room for manoeuvre."

"The Treasury's independent forecaster, the Office for Budget Responsibility, is also expected to downgrade the UK's potential growth when it reports on budget day, based on a reassessment of productivity growth. Officials at the OBR are likely to cut the expected annual increase in productivity by 0.3 percentage points, reducing the government's income by 21bn before the end of the parliament."

UK economic growth is forecast to be under 1% next year because looming tax rises and a fall in business investment will restrict expansion. The EY Item Club downgraded next year's growth to 0.9% after upgrading this year's growth to 1.5% following strong investment. The Office for Budget Responsibility is expected to reduce potential growth forecasts by lowering expected productivity growth by 0.3 percentage points, cutting government income by £21bn before the end of the parliament. Business investment is projected to fall from a 3.7% boost to 0.8% in 2026. Unemployment will peak at 5% and pay growth will slow to around 3% by mid-2026.

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