A regular on television, radio and podcasts, Vicky is Chief Economic Adviser at the Centre for Economics and Business Research (CEBR and Chair of the Economic Advisory Board of the British Chambers of Commerce. She is also a Visiting Professor at King's College London.
She was previously Joint Head of the UK Government Economic Service, Director General for Economics at the Department for Business, Innovation and Skills (BIS) and the Senior Managing Director at FTI Consulting.
She is a former Partner and Chief Economist at the accounting and consulting firm KPMG and has held senior economic positions across the banking and the oil sectors. She is co-founder of GoodCorporation, a company set up to advise on corporate social responsibility. She was the first female Master of the Worshipful Company of Management Consultants. She is also on the steering committee of the Greek-British Symposium and on the Steering Council of komvos-node.org.
Her latest book, Mismanaged Decline,What Politicians won’t tell you about the Economy, jointly written with Prof Andy Ross, was published to coincide with the recent Budget and was the subject of one of Radix’s monthly webinars which can be heard here.
Any grounds for optimism?
There is no doubt that 2025 has been an unsettling year for the UK economy, and one suspects also for the Chancellor, Rachel Reeves. Yes, challenges have been faced by all. Geopolitical conflicts haven’t helped and President Trump's tariffs have caused lots of headaches for producers worldwide. The war in Ukraine has of course already been costly for Europe and the UK in terms of support for Ukraine's defence and wider economic needs. But it has also required a complete rethink of the adequacy or otherwise of defence spending by all in view of the increased perceived threats that the new standoff with Russia and the US's lack of consistency in its support for Ukraine have created. This has all put pressure on budgets and has left a heightened uncertainty amongst businesses and households.
The UK has been no exception. And GDP has fluctuated and reacted according to the emergence of these pressures and various attempts to deal with it.
So, the UK economy grew relatively strongly in the first half of 2025, as firms pumped up investment and production to sell to the US just before tariffs took effect. This led in fact to an unexpected small drop in first estimates of GDP in the US in Q1 2025 as imports into the US from across the world, including from the UK, rose sharply. This type of extra activity fizzled out thereafter and the second half of 2025 saw hardly any expansion in the UK economy. But the good first half was strong enough to almost ensure growth of somewhere between 1.2% and 1.5% for the year as a whole. This should allow the new Labour government, in power since July 2024, to claim that the UK is growing at the fastest annual rate in the G7 apart from the US.
But in terms of GDP per head the situation is much less flattering. And a number of measures introduced in the last two budgets, one in October 2024 and the latest one in late November 2025 have, if anything, acted as growth stoppers. It is, in fact, domestic economic policy decisions that have made the biggest difference to growth.
The £40b tax raising in October 2024, mostly through increases in employers' national insurance contributions, has now been added to by an extra near £30b tax rise from across the board , pushing the overall tax take as a per cent of GDP the highest in UK history by the end of this Parliament since the Second World War. The overall impact has been less willingness to spend and hire and an overall decrease in available vacancies. Unemployment has been rising continuously through the year and is likely to stay above 5% for most of 2026 according to the latest forecast by the British Chambers of Commerce, whose Economic Advisory Council I chair. Without the substantial increases in public spending aimed at improving the quality of public services, it would probably be much worse.
So for next year as a whole, the forecasts are now being downgraded. Business and consumer confidence is likely to remain fragile. Growth is forecast at 1.4% for 2026 by the independent Office for Budget Responsibility which advises the government, but some external forecasters are now becoming more pessimistic. There was nothing in the measures announced in the latest budget delivered on November 26, 2025, for the fiscal years starting in April 2026 and beyond, to positively contribute to growth. In addition, uncertainty over the precise deal on tariffs and on technical and AI cooperation with the US remains a dampener to expectations. Yes, the economy may do slightly better than Germany, Italy and France. But the EU as a whole, helped by continued growth in Spain, Poland and elsewhere could well in fact outperform the UK in this coming year. UK inflation for the moment, at 3.2%, remains above target and considerably higher than the Eurozone average, though the freezing of some prices in the November budget, including rail fares, may bring that down a bit faster in the coming months. But in the meantime the effect of higher than anticipated inflation has been destabilising.
Much of the hope now rests on the Bank of England bringing down interest rates further in the new year. For the moment, despite the latest cut to 3.75% in December, they remain way above those at the ECB. And meanwhile, as bond yields have also stayed elevated, government borrowing remains costly, requiring over £100b a year spent on servicing the accumulated debt.
Admittedly some of the borrowing is being redirected to fund new investment in various sectors, backed up by a new industrial strategy. But that takes time to have an effect and is unlikely to alter the picture much for 2026. It is partly because of this that the government is again attempting to reignite its so- called 'Reset' of its relationship with Europe. For many, disenchanted with Brexit, this is now perceived to be the main way to boost productivity and move to a more sustained growth path ahead. Remains to be seen how much progress is actually made over the next 12 months.
Vicky Pryce is Chair of the think tank Radix Big Tent. She is also Chief Economic Adviser at the Centre for Economics and Business Research and a Visiting Professor at King’s College London.
