UK economy to slow as trade war and higher costs bite - CBI
By Abigail Townsend
Date: Wednesday 18 Jun 2025
(Sharecast News) - UK economic growth is set to slow this year, a leading business group warned on Wednesday, weighed down by higher costs and the fallout from Donald Trump's global trade war.
Publishing its latest economic forecast, the Confederation of British Industry said it now expects GDP growth of 1.2% this year, down on the previous prediction, made in December, for a 1.6% expansion.
The report cited "considerable" domestic and international headwinds for the downgrade.
These include higher costs, following a rise in employer National Insurance contributions and the minimum wage, and the impact of US tariffs on exports and investment.
The CBI also trimmed its forecast for 2026, to 1% from 1.5%. But it was more optimistic conditions would pick up next year.
In particular, it said the economy would likely improve quarter by quarter, as consumer spending rose in response to lower interest rates, falling inflation and real income gains.
It expects the cost of borrowing, currently at 4.25% following two interest rate cuts this year, to fall to 3.5% by early 2026.
"This reflects the [Monetary Policy Committee's] cautious and gradual approach to lowering rates, as it aims to bring inflation down to its 2% target over the medium term," the CBI noted.
The Bank of England's rate-setting body is due to announce its latest rate decision on Thursday. Most analysts expect the MPC to leave Bank Rate on hold, with the next cut more likely in August.
Louise Hellem, the CBI's chief economist, said: "The unpredictable global outlook, combined with rising employment costs, gloomy business sentiment and subdued investment intentions means it's more important than ever that government pulls all the levers it can to set the UK on a path to sustainable growth.
"With GDP set to remain modest in 2026, there is an important opportunity for the government to fire up the growth agenda in forthcoming industrial strategy."
The government is due to publish its long-awaited industrial strategy at the end of this month.
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