UK economy to ‘grow twice as fast’ as Europe in 2025
The UK economy is set to grow twice as fast as its European counterparts next year thanks to the flurry of spending measures announced in October’s Budget, a top bank has forecast.
Britain’s gross domestic product (GDP) will increase by 1.4 per cent next year, analysts at ING said in the bank’s annual economic outlook, while the Eurozone’s economy is set to grow by just 0.7 per cent.
Much of the UK’s growth will be driven by the £40bn of additional spending announced in Chancellor Rachel Reeves’ October Budget, which the bank predicts will play out through higher public sector wages and employment.
“A lot of the [additional spending] is through extra departmental spending, [which] will inevitably end up in wages,” said James Smith, ING’s UK economist.
“That has quite a high fiscal multiplier compared to tax cuts… so I don’t think it’s that controversial to say the growth rate through the first half of next year will be a bit stronger.”
The forecast comes despite Smith predicting that Reeves’ rise to National Insurance is “likely to hit growth as a tax rise should”, rather than trigger a fresh bout of inflation through price rises, as some other economists have feared.
Reeves’ additional spending, which equates to an extra 1.5 per cent of UK GDP, means the UK will continue to pull away from its neighbouring economies, ING’s outlook forecast, with growth in the Eurozone’s Franco-German axis set for another anaemic year in 2025.
Carsten Brzeski, global head of macro at ING, predicted that the Eurozone will contract between the end of 2024 and the start of next year, with political upheaval in France and Germany weighing on the continent’s prospects.
Western Europe will then pick up towards the end of the year, growing 1.4 per cent and 1.2 per cent in the third and fourth quarters of 2025 respectively.
“We predict a winter recession in Europe now, fourth quarter and first quarter next year, so stagnation at the edge of a technical recession,” Brzesky said at a briefing with reporters.
He added: “I think the big risk right now is that we still half half a year – the first half of next year – with Germany and France at a complete standstill. We are looking at another six months of at least political stagnation.”
The ING analysts also cautioned that Germany and France’s reliance on manufacturing and goods also leaves them more exposed to the tariffs being trumpeted by Donald Trump, while the UK’s service-dominant economy – though still vulnerable – is less likely to be in the President-elect’s crosshairs.