UK Economic Forecast Upgraded: BCC Projects Modest 1.4% GDP Growth for 2025, Citing Government Spending Boost
London-UK, December 12, 2025
UK Economic Forecast Upgraded: Cautious Optimism for GDP Growth
The UK’s economic outlook has been marked by a small but significant shift towards cautious optimism, as the British Chambers of Commerce (BCC) released its latest UK Economic Forecast Upgraded.
The BCC, representing the voice of British business, has revised its forecast for Gross Domestic Product (GDP) growth in 2025 slightly upward, now Projecting Modest 1.4% GDP Growth for 2025, a marginal increase from its previous 1.3% estimate.
The revision is primarily Citing Government Spending Boost—specifically a strong, albeit temporary, surge in public sector spending—as the key driver offsetting persistent challenges related to low business investment and sticky inflation.
The forecast serves as a critical temperature check for the British economy, which has struggled with low productivity and high interest rates over the last two years.
While the upgrade is welcome news, the BCC’s report remains subdued about the longer-term prospects, particularly for 2026, for which the growth forecast remains unchanged at a modest 1.2%.
The optimism for 2025 is largely driven by public sector consumption and a slight easing of household inflation, which is predicted to gradually fall toward the Bank of England’s 2% target by the end of 2027.
However, the report is quick to point out that the recent government Budget is unlikely to be a “growth game-changer,” suggesting that fundamental obstacles to sustainable long-term expansion remain unaddressed.
Headlines Points
Modest Revision:Â
The British Chambers of Commerce (BCC) UK Economic Forecast Upgraded marginally, now Projecting Modest 1.4% GDP Growth for 2025, up from 1.3%.
Public Spending Driver:Â
The primary reason for the upgrade is a Government Spending Boost driven by strong public sector consumption and related investments.
Investment Warning:Â
Business investment is forecast to fall dramatically in 2026 to only 0.9% growth, down from an expected 3% in 2025, due to persistent cost pressures.
Subdued Long-Term View:Â
The growth forecast for 2026 remains subdued at 1.2%, signaling deep-seated issues with productivity and lack of aggressive structural reforms.
Inflation Outlook:Â
The forecast projects inflation will ease to 2.1% by the fourth quarter of 2026, though interest rates are expected to fall only slightly by that time, continuing to burden businesses.
The Investment Slump and Sectoral Differences
The most alarming finding in the BCC report is the projected dramatic slowdown in business investment for the coming year.
While investment is expected to show a relatively healthy 3% growth in 2025, this is forecast to plummet to a meagre 0.9% in 2026.
This stark drop is attributed to continued cost pressures on firms, lack of clarity on long-term government industrial strategy, and the absence of direct growth measures in recent fiscal statements.
For an economy that desperately needs capital investment to boost productivity and raise living standards, this predicted slump represents a significant structural vulnerability.
The report highlights a varied growth picture across different sectors. Services, which constitute the largest portion of the UK economy, are expected to grow by 1.3% in 2026. Manufacturing and Construction are forecast to trail slightly behind, with projected growth of 0.9% and 1.1%, respectively.
This uneven recovery suggests that while some areas are benefiting from the temporary Government Spending Boost, the core, wealth-creating sectors face intense structural headwinds.
The Bank of England is expected to maintain relatively high interest rates—forecast at 3.75% by the end of 2025 and easing only slightly to 3.5% by the end of 2026—continuing to suppress investment and borrowing.
The Trade Challenge
A further cause for concern lies in the trade projections. The forecast for export growth has been revised downward for 2026 and 2027, from 3.3% to 1.8% and from 3.2% to 2.4%, respectively.
This downward revision signals that the global trade environment, coupled with ongoing post-Brexit trade friction, continues to challenge British exporters.
The slowing growth in key export markets, as noted by the OECD, adds to the headwinds facing UK firms looking to expand overseas.
In essence, the BCC’s UK Economic Forecast Upgraded is a statement of fragile stability, not robust recovery.
The slight upward revision for 2025 GDP is more a reflection of temporary fiscal stimulus than a sign of structural healing.
The underlying challenges of low investment, weak productivity, and sluggish export growth persist.
The report concludes with an implicit challenge to the government: relying on public spending to meet short-term growth targets is unsustainable;
The focus must shift to structural reforms, simplification of regulation, and measures that genuinely incentivize long-term private sector capital investment to secure resilient, durable growth into the later years of the decade
