Europe Asia News

Less than four weeks before Chancellor Rachel Reeves unveils her budget on November 26, EY Item Club cut its growth forecast for next year, noting that the economy will continue to grow at a slow pace, which will limit tax revenues and the finance minister’s room for maneuver.

The Office for Budget Responsibility (OBR), the Treasury’s independent forecaster, is also expected to downgrade its estimate of the UK’s potential growth on budget day, based on a reassessment of productivity growth.

According to OBR officials, a 0.3-point reduction in the expected annual productivity growth rate is likely to reduce government revenues by £21 billion by the end of the parliamentary term.

EY Item Club raised its growth forecast for this year from 1% to 1.5%, while keeping next year’s forecast at 0.9%, saying it is more optimistic than it was in July.

EY Item Club’s Chief Economic Adviser, Matt Swannell, said: “A combination of potential tax increases, global trade disruptions, and high interest rates is expected to continue restraining economic momentum and result in modest growth next year.”

Growth accelerated this year following a 3.7% rise in business investment. According to the report, such an increase is unlikely to be repeated in 2026, and growth is forecast to slow to 0.8%.