UK trade deals to lift growth, KPMG says
UK growth could be higher than expected due to trade deals agreed with the US and the European Union, a City consultancy has said.
Most forecasters downgraded the UK’s economic outlook for the year in the wake of President Trump’s ‘Liberation Day’, with the IMF and other major forecasters warning the UK was set to suffer a hit of 0.3 per cent to GDP.
But a new forecast has suggested that the UK could be on track for higher growth due to trade deals easing friction and greater clarity being offered to investors and markets.
KPMG economist Yael Selfin has said that UK growth could reach 1.2 per cent this year, which is an upgrade from its previous forecast of 0.8 per cent.
The Big Four consultancy also project investment levels to increase by three per cent and the unemployment rate to be 4.4 per cent this year despite fresh Office for National Statistics figures showing unemployment had crept up to 4.5 per cent.
The upgrade, which appears to be a strong approval of the UK government’s trade policies, may lift Chancellor Reeves’ spirits ahead of an important spending review next week given tight spending pressures.
Selfin said a deal struck with the US has put the UK in a “unique position in Europe” and eased worries about it suffering from more tariffs.
“UK businesses will need to be mindful of indirect impacts through rising trade tensions in other parts of the global economy as well as potential supply chain distortions affecting operations,” Selfin added.
Tax fears remain
Inflation is expected to ease to two per cent by the middle of next year, which is slightly more optimistic than projections made by the Bank of England.
Governor Andrew Bailey has struck a cautious tone on interest rate cuts after suggesting the Bank’s decisions were “shrouded in a lot more uncertainty” on Tuesday.
But KPMG analysts believe the Bank will still make two more cuts this year, with interest rates falling to 3.25 per cent by the end of 2026.
The consultancy also warned that governments across Europe are likely to make “potentially unpopular” tax hikes in order to fund further investment in defence, which is set to rise as high as three per cent of UK GDP by 2035.