Even if the United Kingdom returns to growth, it is headed for a tax increase, economists said

The UK will return to growth this year but the growth will not be enough to prevent the Labor government from raising taxes again before the next election, according to the annual report of the Financial Times economists.

The survey of 96 leading economists found that although the UK could be bigger than France and Germany by 2025, its previous tax hikes on businesses and individuals could dampen employment and hold a wider share. Economy.

Most economists expect only a faster rate of expansion this year, less than the 2 percent the Office for Budget Responsibility had expected for 2025.

Maxime Durmet, senior economist at AllianzTrade, said: “The growth reflects the Government’s and OBR’s forecasts.” “Therefore, tax receipts will also be filed under.”

According to the Chancellor of the United Kingdom, except for some respondents Rachel Reeves In the year It will end tax increases before the next general election, expected in 2029, although Britain has proposed that it will not have another big tax-raising budget in this parliament.

Andrew Oswald, Professor of Economics and Behavioral Sciences at the University of Warwick, says, “Morning perception . . . Without an increase in income tax and value added tax, we cannot make the sunk sums work.

Reeve, who took office warning that Labor had inherited “the worst set of circumstances since the Second World War”, boosted employers’ national insurance by £25bn in her autumn budget – a move which will come into force in April.

“The government has chosen to threaten business, which has hit confidence,” said Sir Howard Davies, professor of practice at the Paris Institute of Political Science (Science Po) and director of the London School of Economics.

He added that given the impact on confidence, the UK would remain “out of the Champions League” in the G7 growth rankings.

Britain’s greater political stability and service-based economy mean it will fare better than France and Germany in 2025, which could be hit harder by US tariffs threatened by President-elect Donald Trump, the study found. However, most economists expected some negative impact on the UK from Trump’s policies.

UK growth will still lag behind the US as the temporary boost from higher government spending in the budget fades and higher labor costs fall on employers, economists said.

Many economists say wages will still rise in real terms, making people feel somewhat better off. However, as prices and borrowing costs remain high and rising tax burdens pose a threat to job security, any improvement in sentiment will be limited, he said.

Fahen Khan, senior economist at manufacturers’ trade group McUK, said increasing employers’ National Insurance contributions would be a “tough pill to swallow” for industries that have seen their costs rise for years.

Stubborn inflation will limit the Bank of England’s scope to cut interest rates, and the UK will suffer from chronically weak investment and productivity, the study found.

The FT survey was closed before a series of data releases. The scale of the test This year they face the Revs.

In the year At the end of 2024, the growth went into reverse Stopping domestic production Contract in the third quarter and October. At the same time, price pressures have slowed and business sentiment has deteriorated.

Most economists think the return to growth will be driven by front-loaded increases in government spending and consumers becoming more willing to spend their savings.

But forecasts compiled by Consensus Economics in December, ahead of the latest figures, found that the median forecast among economists was for GDP growth of 1.3 percent in 2025. Most respondents to the FT survey had similar expectations.

Andrew Goodwin, chief UK economist at the Oxford Economics consultancy, said the OBR was “too tight on the public sector’s capacity to deliver growth” to reach its forecast of 2 per cent of GDP by 2025.

Diane Coyle, a professor of public policy at the University of Cambridge, added that returning the economy to the growth rates it enjoyed before the 2008 financial crisis would “require much more investment in public services and infrastructure than (Reeves) has budgeted for.”

Other respondents described Labour’s current plans, which would significantly reduce public service spending growth from 2026, as “unbelievable”, “unrealistically tight” and “politically unreliable”.

Paul Dales, a consultant at Capital Economics, said it was difficult to attribute the gap to more public borrowing, saying the UK was “close to the limit” of what the financial markets could tolerate.

The chancellor may choose to wait until he is in parliament to raise taxes, which is the political price for such a quick change.

Ray Burrell, an emeritus professor at Brunel University, said any changes in 2025 could be “stealth” such as property taxes or tobacco and alcohol duties.

Ricardo Reis, professor of economics at LSE, said that money had been allocated to investment projects that had not yet been announced, so “they could always be canceled or delayed if there was a problem”.

But some respondents said Reves may soon choose to make unpopular changes.

Jonathan Haskell, a professor at Imperial College London and a former member of the Bank of England’s monetary policy committee, said: “Most chancellors get the pain early in parliament.”

In the year Low growth is not the only reason government spending plans will come under pressure in 2025.

Most survey respondents also predicted that inflation would remain above the BOE’s target, so the central bank would only take “baby steps” to cut interest rates — which would make the cost of government services higher than in previous years.

Most economists see little more than inflation as a major problem in the economy. The bigger issue, says Bart van Ark, director of the University of Manchester’s Productivity Institute, is that “the price level is still considered high, even after adjusting for real wages.”

Nick Bosanquet, a former Imperial College professor who now runs the consulting firm Aim for Health Success, says the “worry” about inflation means that “most households will be liquidated . . . But with many worries for the future.”

Bronwyn Curtis, chairman of the TwentyFour Income fund, added: “The main positive effect[of strong wage growth]has been earlier and taxing the working population . . . It doesn’t make them feel good.

Higher taxes eventually make households feel more secure, even if they can’t afford to spend, said Kate Barker, a member of the BOE’s Monetary Policy Committee.

HSBC economists Simon Wells and Liz Martins said the labor market was the “big unknown” for 2025, pointing to corporate plans to cut headcount, automate, move jobs offshore, compress or raise wages. Prices.

“All of these are negative for UK workers,” he added. “So the question is how the disease spreads.”

Additional reporting by Jim Pickard