Will the UK fare better or worse than other G7 economies in 2025 and why?
I expect UK growth to disappoint this year, around 1 per cent. Increasingly, the terms of reference should be with the G20, to reflect the shift in the balance of economic power to emerging economies — and in particular to the Indo-Pacific. The key story in the G7 will be the strength of US growth versus the rest. This will be particularly noticeable compared with the four European countries that are members of the G7, including the UK.
Western Europe looks set to be the slow growth region of the world economy for the foreseeable future. While forecasts in recent years have often been too pessimistic about the UK’s outlook, it nonetheless shares the same structural challenges as the major EU members.
Do you think the UK will still have an inflation problem at the end of 2025?
If inflation is in line with the target it will be because of very weak growth. The inflation problem in 2025 is whether the UK can enjoy solid growth alongside low inflation. I expect inflation to be low, but above the 2 per cent inflation target at the end of 2025 because of persistent service sector inflation. To avoid a future inflation problem necessitates a far better monetary policy. While interest rates can, and will fall, they need to settle at a much higher level than pre-pandemic.
Will Rachel Reeves need to raise taxes again in 2025? Or before the end of the current parliament?
The chancellor will only not have to raise taxes again before the end of this parliament if she is lucky with strong global growth — which would raise UK growth. Or, she would need to curb public spending with notable reform or austerity, neither of which is likely. Meanwhile, in 2025 she may be able to avoid raising taxes as a higher tax take is already factored into present fiscal plans and borrowing could increase. The pressure on the public finances will be intense because of modest economic growth, high borrowing costs and upward pressure on public spending following the comprehensive spending review, plus increased demands on defence spending.
The focus of financial markets has moved from a focus on inflation in recent years, to a focus on growth now, and in coming years it will move to a focus on debt. Thus, the pressure on the chancellor to keep finances under control is likely to intensify.
Will households feel better or worse off in 2025 compared with 2024?
Unemployment will rise, and so a small but significant number will suffer directly as a consequence of the Budget’s increased tax on employment. Overall, though, and in line with the Budget time projection of the OBR, household incomes should rise modestly in real terms in 2025, so households should be better off, but they may not feel it.
How do you expect the Trump administration’s policies to affect the economic outlook in your region and the global economy in 2025?
Trump’s policies will boost US growth, but the impact globally will depend upon how extensive and high tariffs are, and how firms and countries elsewhere will respond. Trump’s policies may add to growth worries outside the US, and reinforce the need to focus on debt, particularly for western Europe economies, who will be under intense pressure to raise defence spending. China’s response will include relaxing domestic policy further.
You can read the answers contributed by all the respondents here.
Please note, the value of your investments can go down as well as up.
