Source: Sharecast
In its Summer Forecast, the economic forecasting group said it now expects the UK economy to grow by 1.0% this year, up from an earlier prediction of an 0.8% expansion.
The upgrade follows a stronger-than-expected start to the year, with business investment rising by 3.9% in the first quarter – though this was partly due to companies frontloading spending and purchase decision ahead of the well-flagged start of US tariffs in April.
As a result, this level of investment is unlikely to be sustained over the course of the year, as companies pause spending decisions amid heightened uncertainty, the EY ITEM Club said.
GDP growth will slow slightly to 0.9% in 2026, before accelerating to 1.5% in 2027, as the forecasters predicted in their Spring Forecast in April.
Business investment is now expected to be flat next year, down from an earlier 1.0% increase expected, before jumping to 1.8% in 2027.
As for inflation, the forecasting group expects the annual rate of price increases to remain above 3% over the second half and average 3.4% across 2025, up from an earlier 3.0% prediction, before falling to 2.6% in 2026.
Nevertheless, they still expect the Bank of England to cut interest rates by 25 basis points at its meeting next week, followed by further cuts in November and February 2026.
Anna Anthony, the regional managing partner for EY's UK and Ireland division, said uncertainty in the global economy and trade policy has "continued to slow momentum".
Anthony added: "While the agreement struck with the US offers welcome relief to certain sectors and boosts the trading outlook, the UK’s access to a key export market is still reduced from where it was at the start of 2025, which is likely to weigh on growth."1