The UK will return to growth this year but the increase will not be strong enough to prevent the Labor government from raising taxes again before the next election, according to the annual Financial Times economic poll.
A survey of 96 leading economists found that, although the UK could overtake France and Germany by 2025, previously announced tax increases for businesses and individuals could undermine jobs and more generally. the economy.
Most economists expect a faster pace of growth this year, closer to the 2 percent recovery the Office for Budget Responsibility expects by 2025.
“Growth will undercut the government and the OBR's forecasts,” said Maxime Darmet, chief economist at Allianz Trade. “Therefore, tax receipts will be lower again.”
All but a few respondents said the chancellor of the UK Rachel Reeves It will end up raising taxes again before the next general election, expected in 2029, despite his protests that Britain cannot have another big budget tax hike this parliament.
Andrew Oswald, professor of economics and behavioral sciences at the University of Warwick, said there would be a “morning realization . . . that without income tax and VAT increase, we cannot make the big money work”.
Reeves, who took office warning that Labor had achieved “the worst conditions since the second world war”, increased national insurance contributions for employers by £25bn in his Autumn Budget – a move which will come into force in April.
“The government has chosen to scare businesses, which has hit confidence,” said Sir Howard Davies, a professor of studies at the Paris Institute of Political Science (Science Po) and former director of the London School of Economics.
He added that, due to the impact on confidence, the UK will remain “outside the Champions League” in the G7 growth stage.
Britain's greater political stability and services-based economy mean it will fare better in 2025 than France and Germany, which could be hit harder by potential US tariffs threatened by president-elect Donald Trump, a survey has found. However, most economists expect a negative impact on Trump's policies in the UK.
Economists said UK growth will continue to lag behind the US as the temporary stimulus from higher government spending set in the Budget faded and higher labor costs hit employers.
Wages will still rise in real terms, making people better off, many economists say. However, they added that people may not feel much better off because rates and borrowing costs are still high and the rising tax burden is causing concerns about job security.
Faheen Khan, economist at manufacturers' group Make UK, said the increase in employers' national insurance contributions would be a “tough pill to swallow” for businesses whose costs have been rising for years.
Stubborn inflation will limit the Bank of England's ability to cut interest rates and the UK will continue to suffer from weak investment and productivity, the study found.
The FT survey was closed before the series of data releases showed the extent of the challenge facing Reeves this year.
Growth went back to the end of 2024, with GDP growth in the third quarter and the contract in October. At the same time, price pressures have eased and business sentiment has worsened.
Most economists think that the return to growth will be helped by a steady increase in government spending and consumers who are more willing to spend their savings.
But a forecast compiled by Consensus Economics in December, ahead of the latest numbers, found the consensus estimate among economists was for GDP growth of just 1.3 percent by 2025. Most FT survey respondents had similar expectations.
Andrew Goodwin, UK economist at consultancy Oxford Economics, said the OBR had “too much room for the public sector to drive growth” in reaching its GDP growth forecast of 2 per cent by 2025.
Diane Coyle, a professor of public policy at the University of Cambridge, added that returning the economy to the growth rate it enjoyed before the 2008 financial crisis, “will require more investment in public services and infrastructure than he (Reeves) has budgeted for”.
Some respondents described Labour's current plans, which mean growth in public service spending will slow sharply from 2026, as “unrealistic,” “unreasonably rigid” and “politically implausible”.
Closing the gap through public borrowing will be difficult, said Paul Dales, at consultancy Capital Economics, who said the UK was “close to the limits” of what financial markets could tolerate.
The chancellor may choose to wait until later in parliament to raise taxes, because of the political costs of a quick U.S. turn.
Ray Barrell, professor emeritus at Brunel University, said any changes by 2025 would be “subtle”, such as property tax reform, or tobacco and alcohol duties.
Ricardo Reis, professor of economics at the LSE, said that since the money had been set aside for investment projects that had not yet been announced, “these could always be canceled or stopped if there is a problem”.
But some respondents said Reeves may choose to make unpopular changes sooner rather than later.
Jonathan Haskel, a professor at Imperial College, London and a former member of the Bank of England's Monetary Policy Committee commented this Jonathan Haskel.
Slower growth is not the only reason why government spending plans will come under pressure in 2025.
Most respondents to the survey said they expect inflation to remain above the BoE's target for the rest of the year, so the central bank will only take “baby steps” to lower interest rates – which will keep government spending higher than in previous years.
Many economists did not see the slow increase in inflation as a major problem for the economy. The main issue, according to Bart van Ark, director of the University of Manchester's Productivity Centre, was that “price levels are still seen as high, even after real wages have been adjusted”.
Nick Bosanquet, a former Imperial College professor now at the Center for Health Performance Monitoring, said the “freak” of rising prices meant that “a lot of homes are going to melt.” . . but with many worries about the future”.
Bronwyn Curtis, chairman of the TwentyFour Income Fund, added: “The best impact (of strong income growth) is in the past, with the taxation of working people . . . it's not going to make them feel better.”
Higher taxes should eventually lead to better public services that will make households feel more secure, even if they can't afford to spend, said Kate Barker, a former member of the BoE's monetary policy committee.
Simon Wells and Liz Martins, economists at HSBC, said the labor market is “the biggest unknown” in 2025, pointing to the company's plans to deal with rising employment costs by reducing the number of heads, automating, moving jobs offshore, suppressing wages or raising. prices.
“All of these are harmless to UK workers,” they added. “So the question is how will the pain spread.”
Additional reporting by Jim Pickard