LONDON, Dec. 12 (Xinhua) -- The UK's largest business organization warned on Friday that the country's improved growth forecast should not obscure persistent structural weaknesses that continue to constrain private-sector activity and long-term economic prospects.
In its latest Economic Forecast, the Confederation of British Industry (CBI), which represents companies across all major sectors of the UK economy, revised its projections for GDP growth to 1.4 percent in 2025 and 1.3 percent in 2026, reflecting a near-term lift from higher government spending following the Autumn Budget.
The CBI noted, however, that the underlying pace of economic activity remains weak, as firms continue to face a combination of soft demand, elevated operating costs and heightened domestic and global uncertainty.
CBI chief economist Louise Hellem said the new forecast pointed to "cautious optimism rather than cause for celebration," adding that economic momentum observed earlier in 2025 "has clearly faded" as businesses contend with rising employment costs and fragile market conditions.
She stressed that headline improvements driven by fiscal measures do not resolve the deeper challenges weighing on the private sector.
The CBI observed that despite the temporary fiscal boost, private-sector indicators have remained subdued throughout the year. Surveys conducted in 2025 have showed firms delaying investment and hiring decisions amid policy uncertainty and sustained cost pressures. As a result, business investment is projected to remain weak through 2027, potentially placing the UK near the bottom of the G7 in investment as a share of GDP.
Labor-market conditions are expected to reflect similar caution. Private-sector employment growth is forecast to remain muted, with the unemployment rate hovering around 5 percent as firms absorb higher labor costs following increases in the National Living Wage and employer National Insurance contributions.
Household spending is also projected to rise only modestly, constrained by slowing real-income growth and continued precautionary saving. The household savings ratio, elevated following recent economic shocks, is expected to decline only gradually in the coming years.
Inflation, which peaked at 3.8 percent in mid-2025, is forecast to ease to 2.6 percent in 2026 and 2.3 percent in 2027, remaining slightly above the Bank of England's 2 percent target. The CBI expects the Bank to cut interest rates twice, in December 2025 and early 2026.
Looking beyond the near term, the CBI warned that the UK's long-standing productivity shortfall remains a major constraint on future growth. Productivity is expected to stay around 2 percent below its already weak pre-COVID trend and approximately 24 percent below the trajectory prior to the 2008 financial crisis by late 2027, limiting improvements in living standards and the country's competitiveness.
Hellem said that although the Autumn Budget delivered welcome stability, it "left too many bold choices unaddressed." She urged the government to move quickly on reforms essential to restoring business confidence, including easing business energy costs, simplifying the tax system and providing greater clarity around future employment-related expenses.
"If the UK is to unlock stronger, more sustainable growth, policymakers must address the barriers preventing firms from investing and expanding," she said. ■