UK economy facing recession risk as Spring Statement looms
Britain’s fragile jobs market indicates that a recession is looming for the UK economy, a leading think tank has warned.
Chancellor Rachel Reeves defended the government’s economic record in an interview with Bloomberg TV on Monday, claiming most major economies around the world are facing lower growth than expected.
But the Resolution Foundation said the UK economy’s dire outlook of high interest rates and lingering inflation is set to wipe out the government’s fiscal headroom, with borrowing expected to increase by £15bn by 2030.
The think tank said that it would leave the government with a current deficit of around £5 billion, while a decline in employment rates would generate less tax revenue than had been expected.
In its report looking ahead to the Chancellor’s Spring Statement next week, the left-leaning Resolution Foundation also suggested that the government should extend freezes on income tax thresholds, despite Reeves previously ruling out such a policy.
The government’s focus on boosting the UK economy should remain a priority, the report added, as it suggested cuts to stamp duty and reforms to business rates in order to unlock growth.
Yet several forecasters have slashed growth predictions for 2025 as soaring taxes, high interest rates and an escalating trade war have dampened hopes of an economic boom.
The Organisation for Economic Co-operation and Development (OECD) cut its UK growth forecasts for the year from 1.7 per cent to 1.4 per cent, with global trade war tensions impacting expectations.
Growth could slow down further in 2026 as the OECD said the economy would only expand by 1.2 per cent.
The industry body Make UK separately described a fall in manufacturing for the first quarter as “ominous”, with the latest data flipping the trend of recent trends of recent years which traditionally saw output increase between January and March.
Earlier this month, the British Chambers of Commerce cited high taxes and trade turmoil as a “double whammy” to growth forecasts, which it downgraded from 1.3 per cent to 0.9 per cent.
The Bank of England published an even gloomier prediction in February as it halved the UK economy’s expected growth rate to a near stagnant 0.7 per cent.
Households are similarly pessimistic about their financial prospects as the S&P Global UK Consumer Index (CSI) revealed that future financial sentiment hit a 15-month low.
The survey of 1,500 UK households showed that consumers’ expectations for the next year were on the floor, with job insecurity contributing to the fall.
“With businesses already taking a more cautious approach to hiring following changes to employment policies, households have been impacted,” the body said.
“Headwinds to the labour market and a more general slowdown in the UK economy affected households’ perceptions on their financial health over the coming months.”