- Treasury data shows City forecasters expect GDP growth of 1% this year
City forecasters have upgraded inflation expectations and cut growth forecasts again, as pessimism about the direction of the UK economy continues to swell.
It comes ahead of the Bank of England’s next interest rate decision on Thursday, with members of the monetary policy committee set to weigh the implications of rising inflation and lacklustre growth prospects.
Fresh data published by HM Treasury on Wednesday shows City forecasters expect GDP growth of just 1 per cent this year on average, down from 1.1 per cent in February and 1.2 per cent in January.
It follows data last week showing the British economy shrank by 0.1 per cent at the start of the year.
The OECD has also cut its 2025 UK growth forecast for 2025 from 1.7 to 1.4 per cent.
Of the firms updating forecasts in March, Capital Economics is the most pessimistic with expectations of just 0.7 per cent growth for 2025.
City forecasters are growing more pessimistic about the outlook for the economy
KPMG, NatWest Markets, Pantheon and UBS have the most optimistic forecasts of 1 per cent.
The City also downgraded its outlook for 2026 growth, from 1.4 to 1.3 per cent.
Meanwhile the consumer price index is now expected to average 3 per cent growth this year, up from 2.8 per cent last month and well ahead of the BoE’s 2 per cent target.
CPI unexpectedly jumped to 3 per cent in January, hitting its highest level in 10 months and exceeding the 2.8 per cent financial markets had forecast.
The BoE says inflation is likely to reach 3.7 per cent this year, partly as a result of higher energy prices and increases in some regulated prices such as water bills.
City forecasts for inflation this year, of which KPMG and HSBC are the most pessimistic
Of those with new forecasts, UBS is the most optimistic with a prediction that UK CPI will average 2.9 per cent this year.
KPMG and HSBC are the most pessimistic, with a forecast of 3.5 per cent, according to the figures.
The combination of weaker growth and higher inflation means traders do not expect another BoE base rate cut on Thursday, pricing in a hold at 4.5 per cent.
Thomas Pugh, economist at RSM UK, said: ‘It’s more or less a foregone conclusion that the BoE will keep interest rates on hold at its meeting on Thursday.
‘Financial markets are pricing in just a 3 per cent chance of a cut. The more interesting question is how the vote will be split. This will give us some insight into how likely a cut in May is.
‘Firms will be grappling with the surge in employment costs coming in at the start of April that they will likely try to pass on.
‘At 6 per cent, wage growth remains well above the 3 per cent consistent with 2 per cent inflation.
‘As if that wasn’t enough, tariff uncertainty is everywhere and now there is the possibility of a huge fiscal stimulus on defence coming over the next few years.’
City forecasts for GDP growth this year are predominantly around or below 1%
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