Revealed today in the Office for Budget Responsibility’s (OBR’s) Economic and Fiscal Outlook to accompany the Autumn Budget, it said the slightly higher-than-expected growth figure was because output growth was revised up in the second half of 2024.
Furthermore, growth was stronger than expected in the first quarter of 2025, at 0.7%.
The latter, it continued, was partly due to the temporary frontloading of property transactions and exports, as households tried to avoid stamp duty threshold changes and businesses tried to get ahead of tariff increases. Both of these events happened in April.
Growth then fell to 0.3% in the second quarter, as these temporary factors unwound, and to 0.1% in the third quarter, when the Jaguar Land Rover shutdown temporarily weighed on growth – both below the March forecast.
The OBR added: “We expect quarterly growth to pick up only gradually in the near term as geopolitical uncertainty persists and domestic business and consumer confidence remains subdued, including in anticipation of further tax rises.”
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Housing market forecasts
Average interest rates on the stock of existing mortgages are expected to rise from around 3.7% in 2024 to around 5% in 2029, 0.2 percentage points higher than the OBR’s March forecast.
Average house prices are forecast to rise from £260,000 to just under £305,000 in 2030. The fiscal watchdog expects the increase to property income tax rates – announced in the Budget to take effect from April 2027 – to reduce house price growth by around 0.1 percentage points a year from 2028.
Property transactions are forecast to increase from just under 1.1 million in 2024 to around 1.3 million in 2029, around 155,000 fewer transactions per year than in the OBR’s March forecast by 2029.
This is because it has lowered its assumed turnover rate – the ratio of the total housing stock to housing transactions – to better reflect the impact of past increases in average stamp duty.
Net additions to the UK housing stock are expected to fall from an average of 260,000 per year in the early 2020s to a low of 215,000 in 2026-27, as recent subdued housing starts are reflected in additions. Net additions are then expected to rise sharply to 305,000 in 2029-30, reflecting the impact of planning reforms.
Compared to March, net additions are 10,000 lower in 2024-25 but around 25,000 higher in 2025-26, based on estimates drawn from new domestic Energy Performance Certificates (EPCs) up to early October.
GDP forecasts: 2026-29
Growth between 2026 and 2029 was downgraded on previous OBR forecasts.
In 2026, the economy is now expected to grow by 1.4%, lower than the previous forecast of 1.9%.
In 2027 and 2028, GDP is forecast to be 1.6% and 1.5% respectively, down from previous forecasts of 1.7% and 1.8%.
In 2029, the economy is expected to expand by 1.5% rather than 1.8%.
Daniel Casali, chief investment strategist at Evelyn Partners, the UK wealth manager, said: “Given that the tax burden in the economy is already set to exceed levels last seen more than 70 years ago, higher taxes are likely to dampen economic growth.”
The Chancellor revealed £26bn of tax increases, with the freeze on income tax thresholds making a large contribution.
Casali said that with weak productivity, high debt servicing costs and uncertainty in the residential market already weighing on the economy, further tax hikes risk making the growth situation worse.
