Even as the UK economy is projected to grow by EY ITEM Club’s revised forecast of 1.5% for 2025, millions of households are seeing little relief from the cost-of-living squeeze. The upgrade from the 1% prediction made just months earlier in July 2025 sounds encouraging—until you look at what’s happening on the ground. Real wages are stagnant, inflation still bites, and key sectors are sputtering. The disconnect between national figures and daily life is widening—and it’s not just a statistical quirk. It’s a policy failure with real human consequences.
Modest Growth, Uneven Recovery
The EY ITEM Club’s Autumn Forecast, released in November 2025, paints a picture of a fragile recovery. Growth accelerated in the first half of the year: 0.7% in Q1 and 0.3% in Q2, largely fueled by temporary government spending. But by August 2025, the Office for National Statistics reported just 0.3% GDP growth for the three months ending that month—matching July’s pace and barely edging past June’s 0.2%. The Trading Economics data for Q3 2025 was even more sobering: a mere 0.1% expansion, below expectations and a sharp drop from Q2’s 0.3%. The problem? Production is collapsing. Output fell 0.3% across the economy in the August period, with manufacturing down 0.8% and mining and quarrying plunging 1.5%. Arts, entertainment, and recreation took a 2.4% hit in August alone. Meanwhile, services—largely dominated by public sector roles and retail—held up, growing 0.4%. But that’s not enough to lift the whole economy. The Office for Budget Responsibility (OBR) now expects growth to slow to 0.9% in 2026 before a tentative rebound to 1.3% in 2027.The Fiscal Tightrope
Matt Swannell, Chief Economic Advisor to the EY ITEM Club, put it bluntly: to meet its fiscal rules, the government must cut borrowing by up to £30 billion. That means either tax hikes, spending cuts—or both. And the clock is ticking. "Some of these changes would need to be introduced almost immediately," he warned. The November 2025 Budget responded with a mix of pain and promise: £120 billion in new public investment over the parliamentary term, £250 billion in private investment secured since July, and a £1.5 billion commitment to the Youth Guarantee and Growth and Skills Levy. But here’s the catch: those investments won’t pay off overnight. The National Wealth Fund, which has already deployed £3.8 billion to support over 20,000 jobs, won’t reverse the current stagnation. Meanwhile, inflation is still expected to peak at 3.7% in Q3 2025 before falling to 2% by early 2026. The Statista data shows 59% of UK households were already struggling with rising living costs by March 2025—mostly due to energy and food bills. High interest rates, still hovering around 4.5%, mean mortgages and credit card debt remain crushing burdens.
Who’s Left Behind?
While the government touts job creation through Universal Credit reforms (projected to add 17,000 full-time equivalents to the workforce) and the hiring of 3,000 new police officers by March 2026, the real crisis is in the shadows. The number of 16- to 24-year-olds not in employment, education, or training (NEET) has edged close to one million. That’s not just a statistic—it’s a generation losing momentum. The Office for National Statistics also notes rising economic inactivity, especially among younger workers and those with long-term health issues. The NHS is getting £5.2 million more appointments and 250 new Neighbourhood Health Centres, but demand is outpacing supply. Waiting lists for non-emergency care are still longer than in 2019. Even the UK’s massive £3.959 trillion nominal economy—ranked sixth globally—doesn’t tell the full story. Wealth is concentrated. Productivity gains are slow. The Office for Budget Responsibility notes total factor productivity (TFP) is rising, but from such a low base that it’s barely moving the needle.What Comes Next?
The government’s strategy hinges on a bet: that today’s austerity will seed tomorrow’s growth. But history suggests otherwise. After the 2010 austerity program, the UK saw five years of wage stagnation and public service decay before a modest rebound. The same pattern risks repeating. The £30 billion fiscal gap can’t be closed without hurting those least able to bear it. Tax increases on middle-income earners? More cuts to local councils? A freeze on benefits? All are on the table. The real question isn’t whether growth will hit 1.5%—it’s whether anyone will feel it. The EY ITEM Club’s forecast may be technically accurate. But for the single parent working two jobs, the retiree rationing medicine, or the young person stuck in a dead-end gig—growth is just a word in a press release.
Behind the Numbers: The Real Cost of ‘Stability’
The UK’s economic narrative has been dominated by the idea of "stability"—balancing budgets, controlling inflation, avoiding deficits. But stability without inclusion is just another form of decline. The 2025 Budget’s focus on infrastructure and skills is welcome. Yet without targeted support for low-income households—like direct energy bill relief, expanded childcare subsidies, or a living wage mandate—the economy will keep growing in the wrong places. The Office for Budget Responsibility admits that fiscal consolidation will reduce GDP by 0.2% in the short term. That’s not a bug—it’s a feature of the plan. But when you’re already living paycheck to paycheck, a 0.2% hit isn’t a forecast. It’s a lifeline cut.Frequently Asked Questions
How does the 1.5% GDP growth in 2025 affect ordinary UK households?
For most households, the 1.5% GDP growth won’t translate into higher pay or lower bills. Inflation is still expected to average 3.2% in 2025, with peak levels hitting 3.7% in Q3. Real wages have barely budged since 2021, and 59% of families reported struggling with living costs in March 2025. Growth is being driven by public spending and services—not wage growth or productivity. That means households aren’t sharing in the gains.
Why is production output falling while services grow?
The UK’s economy has shifted away from manufacturing and heavy industry over the past 30 years. Services now make up 80% of GDP. But even within services, growth is uneven: public sector roles and retail are holding up, while transport, storage, and entertainment are contracting. Manufacturing output fell 0.8% in Q3 2025, and mining dropped 1.5%. Without investment in advanced manufacturing and green tech, the UK risks becoming a service-only economy with little export potential.
What’s the impact of the £30 billion fiscal shortfall on public services?
To close the £25–30 billion gap, the government is considering tax increases and spending cuts. Local councils, already underfunded, may face further reductions. The NHS, while getting new funding for appointments and centres, still faces staffing shortages. The £1.5 billion Youth Guarantee won’t offset cuts to youth services or apprenticeship programs. Without new revenue streams—like wealth taxes or digital service levies—the burden will fall on middle- and low-income families through higher VAT or benefit freezes.
Why are young people still struggling despite job creation programs?
The Youth Guarantee aims to help 16–24-year-olds find work or training, but it’s targeting only a fraction of the problem. Nearly one million young people are currently NEET. Many face barriers like mental health issues, lack of transport, or unaffordable childcare. The £1.5 billion allocated over three years breaks down to roughly £500 per person—far less than what’s needed to provide sustained support. Without addressing systemic issues like housing costs and underfunded schools, job programs alone won’t turn the tide.
Is the UK’s economic growth sustainable beyond 2027?
Sustainability is doubtful. Growth projections of 1.3% in 2027 rely on productivity gains that haven’t materialized in decades. The UK’s total factor productivity (TFP) is rising from a record low of 0.5% in 2025, but that’s still below the OECD average. Without major reforms in education, infrastructure, and innovation policy, the economy risks slipping back into stagnation. Global trade disruptions and climate-related costs could also derail projections. The current path looks more like a pause than a recovery.
