Tax rises and investment drop 'will be a drag on UK growth in 2026'

The prospect of looming tax rises and a fall in business investment will restrict the UK’s economic growth rate next year to less than 1%, according to a health check of the economy by a leading consultancy.

- Phillip Inman

With under four weeks before Rachel Reeves delivers her budget on 26 November, the EY Item Club has downgraded Britain’s growth for next year, indicating that the economy will continue to expand at a sluggish pace, limiting tax receipts and the chancellor’s financial room for manoeuvre.

The Treasury’s independent forecaster, the Office for Budget Responsibility, is also expected to downgrade the UK’s potential growth when it reports, based on a productivity growth reassessment. Officials at the OBR are likely to cut the expected annual increase in productivity by 0.3 percentage points, reducing government income by £21bn before the end of the parliament.