Keir Starmer’s government had high hopes for its first six months in office, aiming for a smooth transition and positive reception from the public. However, challenges have arisen, particularly in the aftermath of the October Budget announcement which proposed an additional £40bn annual tax burden on businesses. With the implementation of these measures still looming, businesses are feeling the strain and the economic outlook for 2025 appears bleak.

The recent turmoil in the 30-year gilt market, where yields have surpassed levels seen during the Liz Truss spike in 2022, has only added to the uncertainty. Deutsche Bank has warned of potential further tax increases, labeling it as the Budget’s “painful sequel”.

Labour’s promise to make the UK the fastest-growing economy in the G7 seems like a distant dream as the consensus forecast for economic growth in 2025 stands at a modest 1.3%. Private sector firms are bracing themselves for a challenging first quarter, with the CBI reporting anticipated declines in output and hiring. Manufacturing output has already seen a significant drop, attributed to weakened external demand, trade policy uncertainties, and a loss of confidence following the Budget announcement.

The Institute of Directors echoes these sentiments, highlighting profit uncertainty as a major constraint for businesses. The British Chamber of Commerce’s survey reveals widespread concerns about tax burdens, with only a small fraction of businesses planning to increase investments. The recent NIC changes are particularly concerning, with employers facing significantly higher costs per employee compared to previous years.

The decision to implement harsh NIC hikes has been criticized for its potential to hamper business growth, leading to job cuts, reduced investments, and stalled expansion plans. Rising bond yields could further exacerbate the situation, potentially forcing the government to consider more tax increases or spending cuts.

To counteract these challenges and stimulate economic growth, experts suggest monetary easing and increased government spending. The Bank of England may need to accelerate rate cuts to provide relief to businesses and encourage consumer spending. A combination of lower interest rates, government stimulus packages, and infrastructure projects could help boost GDP growth and revitalize the economy.

As the government prepares to unveil a new industrial strategy in the spring, there is hope that these measures will provide much-needed support to businesses and drive economic recovery in the months ahead. With careful planning and strategic interventions, the UK may yet overcome its current economic challenges and achieve its goal of becoming a leading economy in the G7.