The UK economy received an unexpected boost at the start of 2025 as businesses rushed to complete export orders ahead of sweeping US tariffs introduced by President Donald Trump, according to a new forecast from the EY Item Club.
The economic research group has revised its growth forecast for the year to 1%, up from its previous estimate of 0.8%. The upgrade was attributed to a surge in business activity during the first quarter, with companies front-loading shipments to the United States before tariffs 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 at EY Item Club. “But you can see from the size of the upgrade that the outperformance wasn’t massive.”
Despite the early momentum, the outlook for the remainder of the year remains tepid. The EY Item Club predicts UK GDP will grow by just 0.9% in 2026 before settling at a more stable pace of 1.5% in 2027. The forecast highlights ongoing headwinds including geopolitical uncertainty, disrupted trade relationships, and the lingering effects of higher interest rates and fiscal constraints.
Swannell warned that the economy still faces “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 labour market, while showing resilience, is expected to cool. The unemployment rate is forecast to rise to 5% by year-end, up from its current 4.7%. The report describes this shift as an “orderly loosening” rather than a wave of mass layoffs.
Job market figures from Adzuna support this narrative, showing 875,546 vacancies in July — a 2.7% rise year-on-year and the strongest growth since mid-2022. However, Adzuna co-founder Andrew Hunter cautioned that vacancy levels remain below pre-pandemic norms, with hiring still uneven across industries.
Inflationary pressures are also expected to persist. The forecast now pegs average inflation at 3.4% in 2025, slightly higher than the 3% projected earlier this year. Rising household energy costs, increased wages, and higher employer contributions following national minimum wage and insurance hikes are among the main drivers.
The Bank of England is anticipated to respond with gradual interest rate cuts, starting in August. The EY Item Club expects the base rate to fall to 3.5% by early 2026.
Swannell concluded that while the UK economy gained some unexpected traction early in the year, “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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