BCC Economic Forecast: Growth Downgraded as Firms Struggle to Invest and Export

The British Chambers of Commerce (BCC) Quarterly Economic Forecast (QEF) has revised down growth expectations for 2025, as firms deal with a raft of rising cost pressures.

Business investment and exports are likely to suffer this year because of the impact of the National Insurance rise and global uncertainties. Inflation and interest rates are also expected to stay higher for longer.

UK Economic Outlook       

The QEF, winner of the 2024 FocusEconomics award for best GDP forecast, expects the UK economy to grow by 0.9% in 2025, revised down from the previous forecast (1.3%). This year’s limited growth will be driven largely by increased day-to-day government spending. GDP is expected to rise in 2026 to 1.4%, but that is also slightly down from the last forecast (1.5%).

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% in Q4 2025 (up from 2.2% in the last forecast), before falling to 2.1% by the end of 2026 and 2% in Q4 2027.

Unemployment is expected to rise to 4.6% by the end of 2025 (compared to 4.5% 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%, compared with 0.9% in the previous forecast. The picture is then expected to quickly improve, reaching 1.8% in 2026 and 2.0% 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.

The forecast picture on growth varies significantly across sectors. Manufacturing production is expected to contract -0.2% (down from 0.6% in the last forecast) rising to 0.8% in 2026 and 1.1% in 2027. In comparison, the construction industry will grow by 1.3% this year and reach 1.5% in 2026. The services sector is forecast to increase at 1.1% in 2025 and 1.5% 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% in 2025 (compared with a rise of 0.2% in the previous forecast.) Exports are predicted to recover slightly in 2026, growing by 1%, rising by 2.1% in 2027.

Imports are expected to be flat (0.0%) this year before reaching 0.8% in 2026. Net trade continues to contract, with figures of -1.2% in 2025 and 2026, falling to -1.4% 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% by the end of 2025 (compared to 4% in the previous forecast), before falling to 4% 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% in 2025, an upward revision from 3.8% in the last forecast. Salary growth is predicted to fall to 4% 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.”

Key points in the forecast:      

• GDP growth in 2025 downgraded from 1.3% to 0.9%. Growth in 2026 has also been revised down marginally from 1.5% to 1.4%.
• Business investment will struggle in 2025, reaching only 0.6%, as firms face increased costs including the rise in national insurance contributions, before recovering to 1.8% in 2026.
• Exports are expected to fall by 0.5% in 2025, rising to 1% in 2026. Imports are forecast not to grow this year and grow by 0.8% in 2026.  
• The inflation rate will hit 2.8% in Q4 2025, before falling closer to the Bank of England target, hitting 2.1% by the end of 2026 and 2% in 2027.
• The forecast suggests interest rates will be 4.25% at the end of 2025 and fall to 4% in 2026.

Read more latest news from the BCC here.

06.03.2025