as firms export

The forecast picture on growth varies significantly across sectors. Manufacturing production is expected to contract -0.2 per cent (down from 0.6 per cent in the last forecast) rising to 0.8 per cent in 2026 and 1.1 per cent in 2027. In comparison, the construction industry will grow by 1.3 per cent this year and reach 1.5 per cent in 2026. The services sector is forecast to increase at 1.1 per cent in 2025 and 1.5 per cent in 2026.

Trade continues to be challenging

With continuing difficulties trading with the EU and wider global uncertainties, exports are forecast to contract by 0.5 per cent in 2025 (compared with a rise of 0.2 per cent in the previous forecast.) Exports are predicted to recover slightly in 2026, growing by 1 per cent, rising by 2.1 per cent in 2027.

Imports are expected to be flat (0.0 per cent) this year before reaching 0.8 per cent in 2026. Net trade continues to contract, with figures of -1.2 per cent in 2025 and 2026, falling to -1.4 per cent in 2027.

Interest rates to stay higher for longer

With stubborn inflationary pressures in the economy, the BCC is forecasting the Bank of England will continue to take a cautionary approach to interest rate cuts. The forecast expects the base rate to be 4.25 per cent by the end of 2025 (compared to 4 per cent in the previous forecast), before falling to 4 per cent in 2026. No further cuts are then predicted through to the end of 2027.

Average earnings will remain high this year

Average earnings are expected to be higher this year than previously forecast, putting further cost pressures on businesses. Annual wage growth is expected to be 4.2 per cent in 2025, an upward revision from 3.8 per cent in the last forecast. Salary growth is predicted to fall to 4 per cent in 2026 and remain there for 2027 but will still be above inflation.

David Bharier, Head of Research at the British Chambers of Commerce, said: “Our downgrade to the economic outlook is reflective of the severe pressures piling up on businesses right now.

“UK firms are facing a double whammy of rising domestic taxation and a potential global trade war. Businesses are telling us that the rise in National Insurance and the minimum wage will increase costs, stall investment, and cause them to rethink their workforce plans.

“The specific impacts are yet to be fully seen. By April, when the changes come in, we may see more concrete action from firms. If they do start making redundancies, this could potentially reduce tax take. Rising tariffs and energy costs are also feeding into fears.

“In this environment, it is difficult to see where high levels of economic growth will come from. UK firms will need to see a reduction in both input costs and the barriers to global trade. The AI boom could also stimulate growth, but smaller businesses will need support in adoption.

Commenting on the forecast, Vicky Pryce, Chair of the BCC Economic Advisory Council, said: “This is going to be a long and challenging year for UK businesses. The BCC’s forecast shows an economy struggling without the secure foundations to kickstart business investment.

“Inflation will continue to be stubborn this year forcing the Bank of England to keep interest rates relatively high. Global uncertainties will add further dark clouds to the economic climate.

“Businesses can’t simply rely on the promise of long-term strategies from government, they need support now to invest, recruit and trade.”

UK firms are facing a double whammy of rising domestic taxation and a potential global trade war. Businesses are telling us that the rise in National Insurance and the minimum wage will increase costs, stall investment, and cause them to rethink their workforce plans.