Forecast for UK's Economic Growth in 2025 Downgraded; Later Years Anticipated to Witness Uplifts
The Office for Budget Responsibility (OBR) has reduced its projection for 2025 economic growth from 2% to 1%, as announced by Chancellor Rachel Reeves in her Spring Statement on March 26, 2025.
This downgrade is attributable to heightened global uncertainty, structural weaknesses, and cyclical pressures such as elevated energy costs and interest rate expectations.
Key adjustments in the forecast are:
- 2025: GDP growth cut to 1%, with one-third of the reduction due to structural issues and two-thirds to temporary factors like energy prices and uncertainty.
- 2026-2029: The projections average 1.8% annual growth, rising to 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029. Cumulative growth by 2029 is now forecast at 9.4%.
Inflation is expected to reach 3.2% in 2025 and align with the Bank of England's 2% target by 2027. The budget deficit is projected to narrow from £36.1 billion in 2025/26 to a surplus of £9.9 billion by 2029/30.
Chancellor Reeves expressed disappointment with the 2025 figures, while emphasizing long-term reforms, including infrastructure projects, pension system changes, and regulatory reductions. The OBR noted later-year upgrades hinge on easing monetary policy and reduced uncertainty.
The revision aligns with OECD downgrades for G7 economies, indicating shared global challenges. Although near-term growth faces headwinds, the OBR's upgraded medium-term outlook suggests cautious optimism if structural reforms take hold.
Regarding economic forecasts and factors affecting growth, persistent weak productivity, sluggish business investment, tightening fiscal policy, global trade volatility, and the household and housing outlook contribute to the UK's modest growth projections. The OBR and other institutions, such as the Bank of England and IMF, revise UK growth forecasts for 2025 slightly downward or keep them at subdued levels.
- Africa's business sector may find opportunities in the logistics industry, given the UK's focus on infrastructure projects as a means of boosting growth in the long term.
- The global finance market could see increased investment in African nations that possess strong infrastructure, as they may demonstrate resilience amidst cyclical pressures experienced by developed economies.
- In light of the OBR's downgraded economic projections for 2025 and subsequent years, it is expected that import activities from Africa may face momentary setbacks, given the reduction in market demand.
- The International Monetary Fund (IMF) may need to assess Africa's market potential for trade and investment, given the OBR's revision of global economic growth forecasts, which could ultimately impact global business operations and market trends.
