President Trump\u2019s initial move to impose tariffs on almost every country meant Britain\u2019s economy got off to a better-than-expected start in 2025, although forecasters still expect America\u2019s trade war to be a longer-term drag on growth.<\/p>\n
The UK economy is expected to grow 1 per cent this year, according to the EY Item Club, which had previously anticipated a rise in gross domestic product of only 0.8 per cent.<\/p>\n
The forecaster attributed its upgrade to a \u201cflurry of business spending\u201d at the start of the year as companies tried to complete purchases and ship orders before the implementation of US tariffs in April.<\/p>\n
\u2022 Live: Trump to greet Starmer at Turnberry for Gaza, trade and Iran talks<\/a><\/p>\n \u201cThere was some activity and some additional exports brought forward and that lifted [the economy] in the first quarter, but you can see from the size of the upgrade that the outperformance wasn\u2019t massive,\u201d Matt Swannell, chief economic adviser to the EY Item Club, said.<\/p>\n He expected \u201crelatively meagre momentum\u201d in the economy for the rest of this year and next. The \u201cpersistent uncertainty\u201d created by trade wars, actual wars and the prospect for further tax increases meant the UK economy would \u201cremain subdued\u201d. The club anticipated that the economy would expand by 0.9 per cent in 2026 before growing a further 1.5 per cent, which Swannell called the economy\u2019s \u201ccruising speed\u201d, in 2027.<\/p>\n \u201cThere are [likely to be] continued headwinds over the next couple of years,\u201d he said. \u201cThere is uncertainty swirling around the economy<\/a> that will affect businesses\u2019 large investment decisions; the government will continue to tighten fiscal policy; and there are still some effects from past interest rate rises \u2014 a lot of households on fixed mortgages will be refinancing at higher rates.\u201d<\/p>\n The weak economic growth<\/a> is reflected in the labour market, where the club expected the unemployment rate to hit 5 per cent at the end of this year, up from 4.7 per cent. \u201cWe\u2019re expecting a further loosening in the labour market, but an orderly loosening,\u201d Swannell said. \u201cWe\u2019re seeing that firms are slowing hiring but they\u2019re not going through large-scale layoffs.\u201d<\/p>\n