Key Takeaways:
- The UK’s Office for Budget Responsibility (OBR) is expected to slash its economic growth forecasts for 2026 and the rest of parliament.
- The Chancellor is likely to introduce tax hikes to address a £20-30 billion hit to public finances due to weaker growth and rising debt costs.
- The UK economy has been growing at an average annual rate of 1.5% since mid-2024, with GDP growth slowing throughout 2025.
- Inflation has increased to 3.6% in October 2025, exceeding the Bank of England’s 2% target.
- The government is attempting to reassure the public that it is working to improve the economy and public services.
Introduction to the UK’s Economic Outlook
The UK’s fiscal watchdog, the Office for Budget Responsibility (OBR), is set to release its revised economic growth forecasts on November 26, which will have significant implications for the country’s fiscal policy. The OBR’s numbers play a crucial role in shaping major budget decisions, and this time, they are expected to slash their growth forecasts for 2026 and the rest of parliament. This downgrade is likely to result in a £20-30 billion hit to public finances, driven by factors such as softer growth and rising debt costs. As a result, the Chancellor is expected to turn to tax hikes to plug this gap.
The Current State of the UK Economy
The UK economy has been expanding at an average annual rate of around 1.5% since mid-2024, with gross domestic product (GDP) growth slowing throughout 2025. While the economy has grown by 5.3% since the COVID-19 pandemic, GDP per head has only increased by 0.8% over the same period. This modest growth has been partly attributed to weakness in consumer spending, which has been a significant contributor to the UK’s economic expansion in the past. The Commons Library has noted that the slow growth has been a result of various factors, including decreased consumer spending.
Inflation and Its Impact on the Economy
Inflation has been on the rise, increasing from a low of 1.7% in September 2024 to 3.6% in October 2025. This exceeds the Bank of England’s 2% target, which has raised concerns about the impact of inflation on the economy. Higher inflation can lead to decreased purchasing power, reduced consumer spending, and slower economic growth. The government and the Bank of England will need to carefully monitor inflation and take necessary measures to bring it back under control.
Government Response to Economic Challenges
Business Secretary Peter Kyle has attempted to reassure the public that the government is working to address the economic challenges facing the country. In an interview on BBC Breakfast, Kyle stated that "things are getting better in our country" and that the government is investing in public services and laying the foundations for economic growth. He emphasized the importance of economic growth, stating that it allows people to improve their standard of living and enjoy better holidays, spend more time with their families, and overall, have a better life. Kyle also acknowledged that the government needs to do more to break out of the cycle of high tax and low growth.
Conclusion and Future Outlook
The UK’s economic outlook is uncertain, with the OBR’s revised forecasts expected to paint a bleak picture. The government will need to take decisive action to address the challenges facing the economy, including introducing tax hikes to plug the gap in public finances. The Chancellor’s Autumn Budget statement on November 26 will be closely watched, as it will provide insight into the government’s plans to address the economic challenges and promote growth. As the government attempts to reassure the public that it is working to improve the economy and public services, it remains to be seen whether their efforts will be enough to boost economic growth and improve the standard of living for UK citizens.