In its latest UK Economic Outlook, the Big Four Firm projects that UK GDP will grow by a modest 1.2% in 2025 and 1.1% in 2026.

While the economy had a resilient start to the year, the second half looks more uncertain. This subdued outlook is attributed to cautious consumer spending, weaker global trade, and ongoing uncertainty over trade policy hindering business investment.

According to KPMG’s chief economist, Yael Selfin, Chancellor Rachel Reeves is faced with a “tough balancing act”.

The UK government must manage significant spending pressures in health and defence, cover the cost of reversing planned cuts to welfare and winter fuel payments, and service higher debt costs.

Consequently, KPMG forecasts that the Autumn Budget is likely to feature tax rises rather than significant cuts to public services. This trend is expected to continue well beyond the upcoming budget, with the report suggesting a potential “gradual ratcheting up of tax revenues over the next decade” will be necessary to meet the UK’s financial demands.

In a departure from wider consensus, KPMG also predicts the Bank of England may deliver one more interest rate cut before the end of the year. Citing slowing economic growth and a weakening jobs market, the firm forecasts the Bank will “proceed cautiously” with an initial cut in 2025, followed by further reductions in 2026, bringing the base rate down to 3.25% by the end of that year.