Economy Growth downgraded struggle to invest and

With businesses facing increased cost pressures following last Autumn’s Budget, inflation is now expected to remain above the Bank of England’s target until the last quarter of 2027.

CPI is forecast to be 2.8 per cent in Q4 2025 (up from 2.2 per cent in the last forecast), before falling to 2.1 per cent by the end of 2026 and 2 per cent in Q4 2027.

Unemployment is expected to rise to 4.6 per cent by the end of 2025 (compared to 4.5 per cent in the previous forecast). The rate is then predicted to remain at that level for the rest of the forecast period, as labour costs reduce business appetite for hiring.

Limited business investment as cost pressures bite

Firms will struggle to invest in 2025, as they grapple with rises in National Insurance and the minimum wage. Business investment has been revised downwards for 2025 to 0.6 per cent, compared with 0.9 per cent in the previous forecast. The picture is then expected to quickly improve, reaching 1.8 per cent in 2026 and 2.0 per cent in 2027. This increase is due to a crowding-in effect from the public sector spending boost, alongside the more supportive business environment that these better services create.