National Institute UK Economic Outlook Spring 2025 – Summary

We forecast GDP growth of 1.2 per cent in 2025. This marks a moderate downward revision since our Winter Economic Outlook, reflecting heightened domestic cost pressures, weak business confidence, and some additional drag from tariff uncertainty. We forecast inflation to average 3.3 per cent over the year. Persistent wage growth stemming from a historically tight labour market and upward pressures from regulated price increases mean that inflation is likely to return to target more gradually over the next three years. We anticipate two more 25 basis point rate cuts in 2025. While an uncertain economic outlook is likely to constrain the Bank of England's room for manoeuvre, we expect the MPC to look through short run cost pressures and continue cutting rates to support its objective of long run price stability. We believe that the government is not on track to meet its fiscal rules. A weaker economic outlook and lower projected tax receipts are set to erode the limited headroom over the course of the parliament, increasing the likelihood that tax rises will be needed in the upcoming Autumn Budget.