Britain’s economy will ‘muddle through’ this year and next as Rachel Reeves‘s tax hikes and Donald Trump‘s tariffs hit jobs and investment, the nation’s leading business group says.
The Confederation of British Industry (CBI) has downgraded its forecast for UK growth this year from 1.6 per cent to 1.2 per cent, and from 1.5 per cent to just 1 per cent for 2026.
It marks the latest downbeat verdict on Ms Reeves’s performance as Chancellor – and undermines Prime Minister Keir Starmer‘s claim that Labour has ‘fixed the foundations of the economy’.
And the report urged the Government to do more to shift Britain out of ‘low gear’.
CBI principal economist Martin Sartorius said recent rises in employer National Insurance contributions and the national living wage ‘have likely contributed to the recent deterioration in firms’ hiring and investment plans’.
He added: ‘These measures are expected to push up prices, reduce margins, weigh on pay growth, and lower business investment and employment growth over our forecast.’
Mr Sartorius said the impact of US tariffs may be limited – and mainly come indirectly through ‘heightened economic uncertainty, weaker global trade and financial market volatility’.
He said this ‘underscores the need for UK policy measures that strengthen domestic conditions and help shift the economy out of low gear’.
The nation’s leading business group has said Britain’s economy will ‘muddle through’ this year and next in another blow to Chancellor Rachel Reeves
Rachel Reeves presenting her Spending Review to members of Parliament
It marks the latest downbeat verdict on Ms Reeves’s performance
The CBI’s forecast for 2025 and 2026 described the pace of growth as ‘muddling through’. the nation’s leading business group says.
It outlined how Ms Reeves’s Budget changes, which took effect in April, had ‘significantly increased firms’ labour costs’ – especially in sectors such as hospitality and retail.
That will in turn weaken hiring and investment plans, push up prices passed on to consumers and dampen profits as well as wage growth, the forecast suggested.
These higher prices will also affect inflation – expected to remain above 3 per cent mainly thanks to higher energy costs and water bills.
Consumer spending is forecast to pick up, but will be held back by jobs weakness, with unemployment climbing to 4.8 per cent.
But a Treasury spokesman said: ‘We’re investing in Britain’s renewal through our Plan for Change to make working people better off, and the Spending Review set out how we’ll deliver jobs and growth.’
