There was more bad news for embattled Chancellor Rachel Reeves on Thursday after she learned the UK is on course to miss its key fiscal rules, raising the prospect of tax increases later this year.
According to new analysis by the National Institute of Economic and Social Research (Niesr), the UK will grow just 1.2% in 2025, down from its earlier forecast of 1.5%. It cited weak business confidence, global uncertainty, and subdued domestic demand.
Slower growth would translate into lower tax receipts, making it harder for the Government to meet its targets for reducing debt and achieving a budget surplus.
Niesr estimates a potential shortfall of £62.9 billion by 2029/30, in contrast to the £9.9 billion headroom forecast by the Treasury in March.
The think tank also expects inflation to average 3.3% this year, significantly above previous expectations.
Its interim director, Stephen Millard, called for a rethink of the UK’s fiscal rules, warning that the current approach is damaging growth and investment.