The UK economy just defied expectations. With growth of 0.7% in Q1 2025 and another 0.3% in Q2, the country punched above its weight — even as global headwinds howled. On the EY ITEM Club Autumn Forecast released on November 28, 2025, the EY ITEM Club upgraded its 2025 GDP forecast from 1% to 1.5%. The surprise? It wasn’t a surge in exports or a consumer spending binge. It was grit. Quiet resilience. Households spending cautiously, small businesses adapting, and services holding steady despite inflation’s lingering bite.
Why the upgrade? It wasn’t about boom — it was about endurance
The Office for National Statistics confirmed a modest 0.1% monthly rise in August 2025, a signal that momentum wasn’t fading. But here’s the twist: this growth didn’t come from the usual suspects. Manufacturing? Still sluggish. Construction? Stalled by planning delays. The real engine? Services — especially healthcare, education, and professional services — kept ticking over. Even as global demand softened, the UK’s domestic economy held its ground.That’s not luck. It’s adaptation. After five years of supply chain shocks — from the Britishvolt collapse in 2024 to Brexit-era trade frictions with the EU — firms learned to patch, pivot, and persist. Pharmacies sourced active ingredients from non-EU suppliers. Food distributors rerouted shipments through Ireland. Factories stocked up on critical components months in advance. It wasn’t elegant. But it worked.
The warning lights are flashing — and they’re red
But don’t celebrate yet. The EY ITEM Club isn’t throwing a party. Its forecast for 2026? A sharp drop to 0.9%. Why? Three things are converging: higher taxes, tighter spending, and the delayed hangover from record interest rates.Chancellor Rachel Reeves is preparing an Autumn Budget 2025 that must plug a £25 billion to £30 billion fiscal hole. That means pain — likely tax hikes on higher earners, frozen benefits, or cuts to public services. But here’s the balancing act: she’s also pushing for supply-side investments in energy, infrastructure, and critical manufacturing. The goal? Build resilience, not just balance sheets.
“The government can’t just cut its way to growth,” said Matt Swannell, Chief Economic Advisor to the EY ITEM Club. “But if they raise taxes too fast, they’ll choke off the very recovery they’re trying to protect.”
The supply chain trap: Reshoring won’t save you
The OECD’s 2025 Supply Chain Resilience Review dropped a bombshell: aggressive reshoring could slash global trade by nearly 20% — and cut global GDP by over 5% — without making economies safer. That’s the paradox. Moving production home sounds patriotic. But it’s expensive, inefficient, and often just shifts risk rather than eliminating it.True resilience, the report argues, isn’t about geography. It’s about adaptive capacity. Can a company switch suppliers in 72 hours? Can a hospital source PPE from three continents if one route collapses? Can a carmaker retool its battery supply chain without a year-long shutdown?
The UK’s Critical Imports and Supply Chains Strategy (2024) tried to answer this — but critics say it’s too top-down. Too focused on government-led stockpiles, not market-driven flexibility. Meanwhile, the Department for Science, Innovation and Technology just revealed cyber-attacks cost UK firms £4.2 billion in 2024 alone — another vulnerability in the chain.
What’s next? The Autumn Budget tightrope
Rachel Reeves’s budget isn’t just about numbers. It’s a test of political courage. Will she raise National Insurance for middle earners? Cut housing grants? Delay green subsidies? Or will she gamble on long-term growth by borrowing more now to fund R&D, ports, and battery factories?The EY ITEM Club sees business investment rising to 1.7% by 2027 — but only if the government signals stability. Investors need certainty, not sudden tax surprises. And they’re watching. The FTSE 250 is already pricing in a 0.6% GDP contraction in Q4 2025.
Meanwhile, the shadow of Brexit still lingers. UK-EU agrifood trade remains 18% below pre-2020 levels. The electric vehicle battery ecosystem? Still missing its backbone after Britishvolt folded. And pharmaceuticals? Over 70% of active ingredients still come from India and China. One shipping delay. One geopolitical flare-up. And the whole system shudders.
Bottom line: Growth is real — but fragile
The UK didn’t grow because it’s booming. It grew because it’s stubborn. Businesses didn’t wait for permission. They improvised. Workers took on extra shifts. Local councils fast-tracked planning. And now, the government must decide: do we reward that grit with investment — or punish it with austerity?The answer will shape not just next year’s GDP number, but whether the UK becomes a hub of adaptive, resilient industry — or just another economy stuck in slow motion.
Frequently Asked Questions
How does the 1.5% growth forecast for 2025 compare to other G7 nations?
The UK’s 1.5% forecast for 2025 puts it slightly above Germany (1.2%) and Japan (1.1%), but behind Canada (2.1%) and the U.S. (2.3%). What’s notable is that the UK achieved this despite higher interest rates and deeper Brexit disruption than most peers — suggesting stronger domestic demand and service sector flexibility than many analysts expected.
What specific supply chain weaknesses are still unaddressed in the UK?
Key gaps remain in battery materials (lithium, cobalt), pharmaceutical intermediates (APIs), and critical minerals for electronics. The UK imports 90% of its rare earth elements and over 80% of its semiconductor chips. No national strategy yet coordinates procurement across defense, energy, and health sectors — leaving them vulnerable to single-point failures.
Why is the Autumn Budget 2025 so critical for long-term growth?
Because it’s the first major fiscal test since Labour returned to power. If the budget funds R&D tax credits, port upgrades, and grid modernization — even while cutting deficits — it could signal a new era of strategic investment. But if it’s dominated by tax hikes and service cuts, it risks killing the small-business momentum that’s kept the economy alive.
How will higher interest rates impact businesses in 2026?
Businesses with variable-rate loans — especially SMEs — will face higher repayments starting Q2 2026. The Bank of England’s latest data shows 62% of small firms have debt above 3x their earnings. A 0.5% rate hike could push 15% of them into cash flow crisis. That’s why the EY ITEM Club warns: even if taxes stay flat, the cost of capital may be the real growth killer.
What role does cyber security play in economic resilience?
The Department for Science, Innovation and Technology found cyber-attacks disrupted 37% of UK manufacturers and 52% of logistics firms in 2024. One ransomware attack on a pharmaceutical distributor in Manchester delayed insulin shipments for six weeks. Resilience isn’t just about physical supply chains — it’s about digital ones too. The Autumn Budget must fund cyber resilience grants for SMEs, not just big tech.
Is there any hope for the UK’s electric vehicle industry after Britishvolt?
Yes — but only if the government acts fast. Three new battery gigafactories are in planning, backed by Hyundai and CATL, but none have secured long-term raw material deals. The UK still lacks a domestic lithium refining capacity. Without a national strategy to secure mineral rights and fund pilot recycling plants, the EV sector will remain dependent on China — and vulnerable to export bans or price spikes.