UK economy stuck in first gear, according to British Chambers of Commerce survey

The UK economy is stuck in first gear with growth of just 1.3 per cent predicted for 2025 – and the looming autumn Budget a “pivotal moment” for firms.

The latest British Chambers of Commerce economic forecast shows that UK growth has been revised up from the previous forecast of 1.1 per cent - but SMEs need tools to “invest, trade and expand” to avoid a “prolonged, low-growth trap.”

The upgrade reflects better-than-expected economic performance in Q1, supported by public spending.

However, GDP is expected to slow slightly in 2026 to 1.2 per cent, before rising to 1.5 per cent in 2027, unchanged from the previous forecast.

 The growth picture varies significantly across sectors.

Construction is expected to be the best performing sector this year, growing by 1.5 per cent, revised up from 0.8 per cent. Meanwhile, services are forecast to grow by 1.3 per cent, and manufacturing by 1 per cent.   

Meanwhile, business investment across 2025 is projected to be 1.6 per cent - a significant downgrade from 4.8 per cent in the last forecast.

Investment plans across the majority of SMEs remains subdued due to increased costs, most notably the national insurance rise.

Exports across this year are projected to rise by 3.1 per cent (an upward revision from 2 per cent in the last forecast). The upgrade is reflective of stronger than expected performance in Q1 ahead of the introduction of US tariffs.

However, exports will remain modest overall, in the face of continued global uncertainties and trade frictions, such as the removal of the US de minimis allowance. Exports are forecast to grow by 3.3 per cent in 2026 and 3.2 per cent in 2027.  

Imports are expected to grow by 4.4 per cent this year (compared with 3 per cent in the previous forecast), before falling to 1 per cent in 2026, then up to 3.3 per cent in 2027.

But the BCC forecast suggests inflation will remain a thorn in the side of the UK economy, with CPI at 3.7 per cent by the end of this year (revised up from 3.2 per cent).

The National Insurance increase, wage growth and global trade tensions continue to create business price pressures. CPI is expected to ease to 2.5 per cent by the end of 2026, and then 2.1 per cent in Q4 2027. 

Given a pick-up in inflation, further reductions in interest rates are unlikely - leaving the base rate at 4 per cent by the end of 2025.

Only two cuts are projected next year due to the persistence of price rises. The rate is expected to fall to 3.5 per cent by the end of 2026 and then remain there to the end of 2027.  

The trend for the next few years remains the same as previously forecast, with wage growth of 4.1 per cent in 2026 and 4 per cent in 2027.

Meanwhile, the forecast suggests unemployment will remain broadly unchanged at 4.7 per cent this year compared with 4.6 per cent in the Q2 forecast

David Bharier (pictured), head of research at the British Chambers of Commerce said: "Our latest forecast underlines the difficult reality facing UK businesses – and shows that economic growth is stuck in first gear.  

“GDP has been upgraded to 1.3 per cent for this year, due to better-than-expected performance in Q1 supported by public spending.

“However huge uncertainties remain as firms assess the impact of NICs increases, new employment regulations, and yet more trade barriers.  

“A net trade deficit will continue to weigh on growth going forward. Global trade tensions, ongoing conflicts, and the recent removal of the USA’s de minimis threshold for small exporters are acting as a drag anchor on exports. 

“Inflation is also proving more stubborn than expected. Businesses face relentless cost pressures, from the NIC rise to higher wages and global tariffs. These factors are directly constraining investment, which we have revised down. 

“The forthcoming Autumn Budget will be a pivotal moment. The Chancellor faces some tough decisions as more tax rises risk severely undermining sentiment and investment even further.

“Sustainable growth depends on driving productivity through modern infrastructure, a skilled workforce, and seizing the opportunities of the AI revolution. 

 “SMEs need the tools to invest, trade and expand. Without this, the UK risks being locked into a prolonged low-growth trap."