New forecasts from KPMG suggest that economic growth will pick up pace this year, driven by falling interest rates and increased government spending.
The firm predicts a 1.7 per cent rise in GDP over 2025, doubling the 0.8 per cent growth expected for 2024, as reported by .
"Buoyed by a looser monetary and fiscal policy stance, growth in the º£½ÇÊÓƵ economy may stage a welcome recovery after a lacklustre performance in the second half of 2024," it stated.
KPMG anticipates that consumer spending, fuelled by rising real wages and less attractive saving options due to lower interest rates, will drive this acceleration. Consumer spending is projected to grow by 1.8 per cent this year, an increase from 1.0 per cent the previous year.
However, inflation is also expected to persist slightly more than previously anticipated due to stronger demand. .
The firm suggests that companies will be able to offset much of the costs from the national insurance increase to consumers through higher prices. Consequently, inflation is predicted to average 2.4 per cent in both 2025 and 2026, only a 0.1 percentage point drop from 2024.
This means that the Bank of England is likely to maintain a slow pace of interest rate cuts, with KPMG predicting just three cuts throughout the year.
"The risk of policy error remains high, which could prompt a slower and more deliberate approach from policymakers," said Yael Selfin, chief economist at KPMG º£½ÇÊÓƵ.
Selfin highlighted potential risks to the global economy, cautioning that a "flare-up" in international trade tensions due to President Donald Trump's protectionist policies could have significant repercussions. He warned that a full-blown tariff war might reduce º£½ÇÊÓƵ GDP by 0.4 per cent, with potentially more severe impacts on Europe's export-driven economies.
"Trade tensions and uncertainties about the scale and timing of tariff measures add another layer of uncertainty to the global economic outlook," Selfin noted.
