The EY Item Club, an independent forecaster based on EY’s UK practice, has revised its growth forecast for the United Kingdom. They’ve reduced their 2024 estimate from 1.0% to 0.8%. This change compensates for ongoing uncertainties in the global market, especially as affected by recently enacted tariffs by the United States. The updated forecast projects a smaller reduction in 2026, with expected growth there of 0.9%, a reduction from 1.6%.
The cumulative effect of these tariffs is not achievable, they are set to forge acute barriers to UK exports. The US is an extremely important market for British services, making up around 16 per cent of the UK’s exported goods. The tariffs are a 10% baseline tax on all imports from the UK. That’s on top of a monstrous 25% tariff on aluminium, steel, and cars. Finally, UK exports will be hit badly as experts expect them to contract by around 0.5% in 2025. They project a continued decrease of about 0.4% in 2026 as well.
As difficult as these conditions may be, all forecasts point to continued growth in the service sector in 2024. As noted by the Federal Reserve, inflation will likely get back over 3% in April and stay relatively high throughout much of 2021. The EY Item Club believes that inflation will come down here around 2.4% in 2026.
Incipient interest rate cuts are expected to deliver a measure of relief, increasing household and business spending. Uncertainty related to global market conditions will continue to weigh on business investment in the near term.
Matt Swannell, chief economic adviser to the EY Item Club, highlighted the implications of these tariffs on economic activity:
“US tariffs will act as a drag on UK growth and we’re likely to see a slowdown in economic activity from the second quarter of this year through to early next year.”
The International Monetary Fund (IMF) has adjusted its growth forecast for the UK to 1.1% this year, down from 1.6%. This change further highlights the unique economic crisis our country is experiencing.
Anna Anthony, EY UK & Ireland regional managing partner, emphasized the importance of stability for businesses:
“Businesses thrive on certainty, so it’s unsurprising that an unpredictable global market is translating into lower levels of business investment over the short term.”