Britain’s leading employers’ group, the Confederation of British Industry (CBI), has downgraded its economic growth projections for 2025, citing the impact of measures announced in the

government’s latest budget. The revised outlook reflects mounting challenges for businesses facing higher costs and squeezed profit margins.

The CBI now forecasts growth of 1.6% in 2025, down from its earlier estimate of 1.9% in June. For 2024, growth expectations have also been slightly reduced, from 1.0% to 0.9%.

Louise Hellem, the CBI's chief economist, highlighted the strain on businesses caused by the new measures. “The autumn budget introduces cost pressures at a time when profit margins are already under pressure,” she said. “Many firms are warning that these changes will likely drive up prices, curb hiring, and limit investment plans.”

Budget measures spark concerns

Finance Minister Rachel Reeves’ October 30 budget included an increase in employers’ social security contributions starting in April, alongside a nearly 7% rise in the minimum wage. These measures have prompted concerns among businesses, with many suggesting that the higher costs could undermine Prime Minister Keir Starmer's efforts to accelerate economic growth.

The Bank of England (BoE) reported that over half of surveyed companies planned to respond to the budget by raising prices and cutting jobs. On Thursday, Starmer reaffirmed his government’s commitment to its growth agenda, despite the challenges.

Diverging growth forecasts

The British Chambers of Commerce (BCC), another employers' group, also expressed concerns about rising employment costs in 2025, as well as the potential for export tariffs if Donald Trump re-enters the White House. However, the BCC revised its 2025 growth forecast upward, from 1.0% to 1.3%, contrasting with the CBI's gloomier outlook.

Similarly, the OECD recently raised its 2025 growth forecast for Britain to 1.7%, up from 1.2%.

Long-term challenges ahead

The CBI projects that business investment will rise in 2025 but slow in 2026, reflecting higher employment costs and increased public investment, which could "crowd out" private sector activity. Inflation is expected to remain above the BoE's 2% target until at least 2027, fueled partly by rising labor costs. These costs are also expected to dampen private sector job growth, with a larger share of employment gains coming from self-employment.

Wage growth is predicted to weaken, while the BoE is anticipated to reduce its benchmark Bank Rate gradually to 3.5% by late 2026, down from the current 4.75%. Overall economic growth in 2026 is forecasted at 1.5%.

Trade risks and uncertainty

The CBI’s forecasts assume that Britain avoids new U.S. trade tariffs, though the group noted that the economic impact of a potential trade war would likely be minimal. Nonetheless, the outlook underscores the challenges businesses face as they navigate rising costs and an uncertain economic environment. Photo by Phil Whitehouse, Wikimedia commons.