CBI raises UK GDP estimates but warns of sluggish demand

(Sharecast News) - The Confederation of British Industry (CBI) has raised its UK economic growth forecasts for 2025 and 2026 as a result of government spending upgrades following the Autumn Budget, but warned that "persistent weakness" in private sector demand is continuing to hold the economy back. According to the latest CBI Economic Forecast on Friday, UK businesses are "swimming against the powerful tides of weak demand, elevated labour and energy costs, and ongoing domestic and global uncertainty".

The British business interest group said that momentum in economic activity has softened after a solid start to 2025, with its regular surveys showing evidence of "consistent sluggishness in underlying activity".

It expects only "modest" growth in household spending amid slowing wage increases and "lingering caution".

Business investment is expected to stay weak through to 2027 due to subdued demand and global uncertainty, with private sector employment likely to remain muted amid high labour costs following the increases to the national living wage and national insurance contributions, which kicked in this April.

Nevertheless, the CBI raised its UK GDP growth projections for 2025 and 2026 to 1.4% and 1.3%, up from earlier estimates of 1.2% and 1.0% in June, respectively.

"While it's welcome to see our growth forecast upgraded for next year, the mood music reads more 'cautious optimism' than 'cause for celebration'," said the CBI's chief economist Louise Hellem.

"The momentum that we saw in early 2025 has clearly faded through the year, and our revised growth forecast has mostly been driven by a near-term boost in government spending and investment - rather than addressing the underlying challenges that are holding the rest of the economy back."

As for interest rates, the CBI is expecting the Bank of England to ease monetary policy twice over the next 12 months - one cut next week followed by another in early 2026 - taking the Bank Rate to 3.5%.