The UK economy received an unexpected lift earlier this year as businesses rushed to complete orders ahead of President Trump’s sweeping tariff regime, according to the latest forecast from the EY Item Club.
The respected forecaster has raised its 2025 growth projection to 1 per cent, up from the 0.8 per cent previously expected, crediting a “flurry of business spending” in the first quarter before tariffs on imports into the US came into force in April.
“There was some activity and some additional exports brought forward and that lifted [the economy] in the first quarter,” said Matt Swannell, chief economic adviser to the EY Item Club. “But you can see from the size of the upgrade that the outperformance wasn’t massive.”
Despite the modest short-term benefit, Swannell cautioned that the outlook for the remainder of 2025 and beyond remains subdued, with trade disruption, geopolitical uncertainty, and the ongoing impact of fiscal tightening likely to constrain growth.
The Item Club forecast UK GDP will rise by just 0.9 per cent in 2026, before returning to a more typical “cruising speed” of 1.5 per cent in 2027.
“There are likely to be continued headwinds over the next couple of years,” Swannell said. “We’re seeing a combination of uncertainty around trade, the potential for further tax rises, and the lagged effects of interest rate increases, particularly for households refinancing fixed-rate mortgages.”
The EY Item Club also expects the unemployment rate to rise to 5 per cent by the end of the year, up from its current level of 4.7 per cent. While hiring has slowed, the report stresses that companies are not engaging in large-scale layoffs, describing the trend as an “orderly loosening” of the labour market.
Supporting that view, new data from Adzuna shows 875,546 job vacancies in July, a 2.7 per cent increase on the same time last year and the strongest annual growth since July 2022.
“This may be a potential turning point for the UK job market,” said Andrew Hunter, co-founder of Adzuna. However, he noted that vacancy levels remain below pre-pandemic figures and that hiring activity remains “patchy” across sectors.
Inflation is now expected to average 3.4 per cent in 2025, higher than the 3 per cent the Item Club had projected in the spring. This persistent price pressure is being driven by rising household energy bills, higher labour costs, and the impact of April’s increases in the national minimum wage and employer national insurance contributions.
As a result, the Bank of England is forecast to begin easing interest rates over the coming months. The Item Club expects the Monetary Policy Committee (MPC) to cut the base rate in August, November, and February, reducing it to 3.5 per cent, where it is expected to remain in the near term.
“The MPC appears more concerned about cutting interest rates too quickly rather than too slowly,” Swannell said. “But a softening job market and cooling pay growth should provide reassurance that domestic inflationary pressures are set to fade, albeit gradually.”
While the early-year uplift may provide some temporary optimism for policymakers, the EY Item Club’s outlook remains cautious. The UK’s near-term growth is expected to be held back by external shocks, elevated borrowing costs, and limited fiscal headroom.
Swannell summed up the broader outlook: “The UK economy may have got off to a slightly better-than-expected start in 2025, but the bigger picture is one of low growth, persistent uncertainty, and an economy still adjusting to post-pandemic, post-Brexit, and now post-tariff volatility.”
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Trump tariff confusion gave UK economy short-term boost, but long-term risks remain, says EY Item Club