Glow growth and high inflation can wreck UK's budget plans

Slow growth and persistent inflation will wreck Rachel Reeves' budget plans and increase the likelihood of further tax rises in the autumn, according to forecasts by a leading economic think-tank, reports the Guardian.

The National Institute of Economic and Social Research (NIESR) said the UK was on course to suffer a long period of stagnation, cutting tax receipts and forcing the chancellor to balance the books only months after a tough budget in March that reduced welfare benefits.

NIESR said the problems Britain faced this year were largely of the government's own making rather than due to slowing global trade.
It predicted the UK economy will grow by 1.2% in 2025, down from a previous forecast of 1.5%, "amid low business confidence, high uncertainty and rising cost pressures".

The prospect of further tax rises in the autumn was playing a bigger role in dampening business investment than the uncertainty surrounding Donald Trump's tariff threats, it added.

"While global headwinds such as the recently imposed US tariffs are disrupting international trade, the biggest factors dragging down UK economic growth are domestic," the report said.

NIESR said higher than expected inflation and lower growth would place the Bank of England in a difficult position ahead of the central bank's next interest rate decision.

Thread Needle Street policymakers are expected to cut interest rates by 0.25% to 4.25% when they meet on Thursday. But they may be concerned about inflation staying high for a longer period, limiting the number of rate cuts later in the year.

Financial markets expect at least two further cuts, while NIESR predicted there would only be one more in 2025 after a quarter point cut at the May meeting.

The think-tank's UK economist, Benjamin Caswell, said manifesto pledges that prevented the Treasury from increasing levels of borrowing and skewed tax rises away from households to businesses were harming economic growth.