Forecasters predict a troubling outlook for Britain’s economy, with a projected contraction of 0.3% in the second quarter of 2025, reversing the previous quarter’s growth of 0.7%. Rachel Reeves, the Chancellor, faces mounting pressure to adjust her spending plans, with Paul Johnson from the Institute for Fiscal Studies stating that she is “inevitably” heading for tax increases to support her commitments. The economic downturn is attributed to various factors, including President Donald Trump’s tariff war, which is expected to reduce GDP by 0.2%. Additionally, rising inflation due to Middle Eastern chaos and domestic policies, such as increased National Insurance for employers, are complicating the situation. The Confederation of British Industry has also expressed concerns about the impact of these policies on small and medium-sized businesses, highlighting the significant pressures faced by the UK’s manufacturing sector.

Bank of England Governor Andrew Bailey indicated that the labour market is “softening” and wage growth is declining, which may lead to interest rate cuts. The Monetary Policy Committee (MPC) recently voted 6-3 to maintain interest rates at 4.25%. Bailey noted that firms are unlikely to continue raising pay at the current rate, saying: “Pay increases are still well above a level consistent with the target. However, I get the message pretty consistently they are coming off.” Deputy Governor Dave Ramsden supported a rate cut due to falling employment and vacancies, suggesting that inflation risks are shifting. He stated: “I assessed that the signals from the labour market provided a sufficiently strong case for a reduction in Bank Rate to 4%.” Concerns about inflation remaining above 3% were echoed by external MPC member Megan Greene, who warned of potential impacts on wage and price-setting behaviour.

According to the latest Wealth Migration Report by Henley & Partners, the UK is projected to lose 16,500 millionaires in 2025, more than any other country. The increase from last year’s forecast of 9,500 is attributed to punitive tax hikes and a stagnant economy. Dr Juerg Steffen, chief executive of Henley & Partners, said: “This isn’t just about changes to the tax regime. It reflects a deepening perception among the wealthy that greater opportunity, freedom, and stability lie elsewhere.” The report highlights that the UK will also experience the highest combined wealth loss from departing millionaires, raising concerns about the long-term economic implications for the country. Recent tax increases, including changes to capital gains tax and the abolition of the non-dom regime, are accelerating this trend, prompting discussions within the Treasury about potential policy reversals to retain high-net-worth individuals.

The UK’s manufacturing sector is facing significant challenges, with a recent survey by the CBI revealing a 23% decline in production over the past three months. The downturn affects 15 out of 17 sub-sectors, including the chemicals and mechanical engineering industries. Business leaders are urging Chancellor Rachel Reeves to support training and technology initiatives with immediate actions, as high energy costs and skills shortages continue to hinder growth. CBI lead economist Ben Jones pointed to the need for the Government to “dismantle barriers to growth” and implement energy cost interventions swiftly. Despite some signs of recovery, Pantheon Macroeconomics’ Elliott Jordan-Doak cautioned that the sector’s sentiment and activity may remain weak for the foreseeable future due to ongoing trade uncertainties.

British grocery price inflation has surged to 4.7% for the four weeks ending June 15, marking the highest level since March last year, according to Kantar. This increase, up from 4.1% in the previous month, is attributed to rising costs of items like chocolate, butter, and meat. Tesco highlighted that new employer taxes and regulatory costs are exacerbating inflationary pressures amid rising commodity prices. The Institute of Grocery Distribution predicts food inflation could approach 5% this year. While grocery sales value increased by 4.1% year-on-year, volumes fell by 0.4%, indicating the first decline this year. Tesco, Sainsbury’s, Lidl GB, and Ocado reported significant sales gains, while Asda experienced a 1.7% decline.

Labour’s recent creative industries sector plan has raised concerns about the future of the UK’s thriving creative sector, which generates over £100bn annually and supports millions of jobs. Stuart Andrew, Shadow Culture Secretary, argues in the Express that Labour’s “Jobs Tax” and increased Business Rates are detrimental to creative businesses, threatening their survival and job creation. He highlights that while the Conservatives supported the sector with over £1bn in tax reliefs and initiatives like the Culture Recovery Fund, Labour has introduced £2.8bn in new costs and anti-business regulations. Andrew warns that Labour’s policies risk undermining decades of success in the creative industries, stating: “We can’t let short-term thinking and high-tax ideology destroy decades of success.”

Sir Keir Starmer’s commitment to increase defence spending to 5% of GDP by 2035 may necessitate significant tax hikes, warns Paul Johnson, director of the Institute for Fiscal Studies (IFS). The Government plans to allocate 3.5% of GDP to defence, with an additional 1.5% for related areas, ahead of a NATO summit. Johnson stated: “If spending goes only one way then so, inevitably, will tax.” Labour ministers are exploring tax options after ruling out increases to income tax, VAT, and national insurance contributions.

A group of farmers and business owners is pursuing a judicial review of the Government’s controversial inheritance tax changes, claiming a lack of public consultation prior to the policy’s implementation. The claim, submitted to Chancellor Rachel Reeves and HMRC, does not seek to reverse the changes but argues that the Government failed to meet its public law obligations regarding significant tax policy shifts. The Chancellor’s decision to tighten exemptions for Agricultural Property Relief and Business Property Relief, capping the tax-free threshold at £1m, has sparked widespread protests. James Austen, a partner at Collyer Bristow, said: “The Government should be held to its public law obligations on matters of tax policy.” The legal action follows a similar case dismissed by the High Court earlier this month.

The Bank for International Settlements (BIS) has issued a serious warning regarding the risks associated with stablecoins, urging countries to accelerate the tokenisation of their currencies. The BIS highlighted concerns such as the potential for stablecoins to undermine monetary sovereignty and the risk of capital flight from emerging markets. “Stablecoins as a form of sound money fall short, and without regulation pose a risk to financial stability and monetary sovereignty,” the BIS stated in an early chapter of its annual report. The BIS advocates for a tokenised “unified ledger” system that integrates central bank reserves and commercial bank deposits, aiming to enhance payment efficiency and transparency.

British firms are increasingly investing in artificial intelligence (AI), with a recent survey by Lloyds Bank revealing that nearly 60% of businesses are already utilising the technology. The survey indicates that 82% of early adopters have experienced a boost in productivity, with productivity being the primary driver for AI investment at 46%. Over half of the firms plan to invest in AI over the next year, while a quarter of non-adopters are considering its implementation. However, challenges remain, with 42% citing technology costs as a barrier. The UK AI market is projected to significantly contribute to the economy, with Microsoft estimating a potential £550bn increase in GDP by 2035.

Dr Ann Kaplan Mulholland, CEO of iFinance Canada, writes in the Independent that she is leaving the UK for Italy due to Labour’s non-dom policies. She says: “In her quest to better tax the wealthy, Rachel Reeves effectively handed a red card to 74,000 affluent individuals and families, many of whom are in the top 3% of taxpayers. This is not just a blunder; it’s akin to setting fire to a cash register and wondering why the store is suddenly empty. Those non-doms collectively contribute about £8.9bn in income tax, capital gains tax and national insurance. By pushing them out of the UK, [the Chancellor] has not only hurt the economy but has also exacerbated poverty for the one in five people living in the UK who are already struggling to make ends meet.” Mulholland has lived in the UK since 2022 and spent millions restoring Lympne Castle in Kent.