One of Britain’s leading business groups has significantly reduced its forecast for economic growth in 2025 and the following year due to challenges posed by U.S. tariffs and increased payroll taxes. The Confederation of British Industry (CBI) now predicts growth of 1.2% for this year, down from the 1.6% forecast in December. For 2026, growth is expected to be 1.0%, reduced from the previous estimate of 1.5%. Rising labor costs, including increased social security contributions and minimum wage hikes effective in April, are impacting firms’ hiring and investment plans, likely leading to higher prices and reduced profits. These forecasts were made before recent oil price surges, and the CBI is monitoring potential impacts on UK households and businesses. “The unpredictable global outlook, combined with rising employment costs and subdued investment intentions, means it’s crucial for the government to stimulate sustainable growth,” said Louise Hellem, chief economist at the CBI. Although the direct impact of tariffs on the UK is expected to be limited, they will likely affect business activity. The Bank of England estimates that U.S. tariffs will reduce annual output by 0.3% in three years while slightly lowering inflation. The CBI expects inflation to remain above the BoE’s target this year due to higher household energy costs but predicts it will fall to 2.5% in 2026. Economic growth in 2026 will be driven by household spending as inflation cools and borrowing costs decrease.
— new from Reuters
