Marking myself to market: my forecasts for 2025

Jonathan Portes looks back on the predictions he made about the UK economy at the start of 2025 and assesses what he got right and wrong.

Every year the Financial Times asks, just before Christmas, 100-odd UK economists for their predictions for the year to come. And in recent years, in the spirit of Brad Delong’s call for economists to ‘mark their beliefs to market’, I’ve looked back at what I said last year (the 2024 edition is here).

But first, what was the consensus? Well, relative to the UK’s recent poor performance, we thought things would look up for the economy overall, but households would be slow to feel any benefits.  The FT summarised:

“Higher government and consumer spending will restore growth in the UK economy in 2025, helping it to outperform European peers that are more exposed to the threat of political instability and new trade wars. But households will not feel much better off, as wage growth will slow and rising unemployment will fuel anxiety. Meanwhile, inflation will linger stubbornly above 2 per cent, limiting the scope for the Bank of England to cut interest rates, as businesses feel the effects of rising taxes.”

This was pretty much spot on for the year as a whole, although consumer spending was weak in the second half of 2025 and growth slowed.

What about me?  My detailed responses and self-evaluation are below

Will the UK fare better or worse than other G7 economies in 2025 and why?

“I would guess that we will again be in the middle of the pack. There are significant downside risks in the Eurozone as a result of political events and policy paralysis in France and Germany. The US may outperform in growth terms if Trump cuts taxes (even more than expected) — but this will not in itself mean the US is faring “better” since the US’s fiscal trajectory is already unsustainable.”

Assessment: Accurate: we will indeed outperform European G7 countries, but not the US, and you would have to be Trump or a Telegraph columnist to think the US economy is performing well.

Do you think the UK will still have an inflation problem at the end of 2025?

“I don’t think the UK has an “inflation problem” now, in that inflation should be well down the list of policymakers’ concerns; to the extent that inflation is higher than desirable in some service sectors, that reflects structural/supply-side issues. I don’t think that will change in 2025 but almost by definition shocks that generate unexpected inflation are unexpected!”

Assessment: I broadly stand by this – I do think lack of effective competition in some service sectors is contributing to the stickiness of inflation, but that from a macroeconomic perspective inflation is not a major concern at present.

Will Rachel Reeves need to raise taxes again in 2025? Or before the end of the current parliament?

“If short-term economic prospects worsen, raising taxes would be precisely the wrong response. And if they are as expected or slightly better, a period of stability in the overall fiscal policy stance would be welcome. That said, there is a strong case for pro-growth tax reform in several areas (income tax, council tax, VAT) and that would be the right place to start.”

Assessment: I clearly got this one wrong – although to be fair the November Budget does follow my advice in that it doesn’t actually raise taxes in 2025, or indeed in 2026-27; the bulk of the tax rises only take effect in 2028-29 and thereafter, and I always thought that it was likely to be necessary to raise taxes over the longer term.  I remain very disappointed by the lack of pro-growth tax reform

Will households feel better or worse off in 2025 compared with 2024?

“I said (accurately) last year that overall, UK households would see modest but positive real income growth in 2024, but that how that was experienced would vary substantially between households; the same applies to 2025. In practice, how households feel about the economy may depend as much on whether and how quickly the government can translate extra spending into repairing and improving the catastrophic state of public services (especially the NHS and policing/crime) that it inherited from the last.”

Assessment: This seems accurate. Overall, both real wages and household incomes grew modestly in 2025, but most surveys suggest that the majority do not feel better off and consumer confidence remains low (and hence savings remain high)

How do you expect the Trump administration’s policies to affect the economic outlook in your region and the global economy in 2025?

“Trump’s actual policies are very unclear, so predictions/forecasts are very difficult. Fortunately, most UK exports to the US are services and aren’t vulnerable to tariffs, so in the short-term the impact may be relatively limited, with stronger US demand offsetting the impact of any tariffs. Of more concern is the impact of irresponsible (or worse) fiscal policy on long-term interest rates, although on balance this is unlikely to materialise in 2025.”

Assessment: In terms of the direct impact of Trump’s policies on the UK, this seems accurate for 2025: relatively limited. The long-term threat to the UK (and other advanced economies/liberal democracies) of the Trump administration’s toxic cocktail of economic illiteracy, rampant corruption, and attempt to export far-right/white nationalist ideology is, however, considerably worse than I anticipated then.

As usual, the FT will publish my and others’ predictions for 2026 early in the New Year.

By Professor Jonathan Portes, Senior Fellow, UK in a Changing Europe.