How will the expected tax hikes impact the UK's economic growth?

Analysts at Morningstar have slashed their growth forecast for the UK economy in 2026, predicting it will grow by just 0.5% due to the impact of the expected tax increases.

Are all economists pessimistic about the UK's economic outlook?

No, some economists like Martin Beck from WPI Strategy believe the UK's growth outlook is being overly criticized and that the economy will show similar strength next year, with the Bank of England potentially cutting interest rates to offset the impact of tax hikes.

Home / Business and Economy / UK Faces Fiscal Tightening: Looming Tax Hikes to Slow Economic Growth

UK Faces Fiscal Tightening: Looming Tax Hikes to Slow Economic Growth

Q: What is the UK government's plan to address its fiscal deficit?

The UK government is planning to raise taxes, including potential increases in National Insurance and income tax, in an effort to close a £40 billion fiscal "blackhole".

13 Nov

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Summary

UK economy expected to grow just 0.5% in 2026 due to tax hikes
Income tax and National Insurance increases likely in upcoming budget
Economists divided on UK's economic outlook for next year

UK Faces Fiscal Tightening: Looming Tax Hikes to Slow Economic Growth

As the UK government prepares to unveil its budget on November 26, 2025, the country is facing the prospect of a significant economic slowdown next year. According to the latest analysis, the British economy is expected to eke out growth of just 0.5% in 2026, a sharp downgrade from the previous forecast of 1.5%.

The primary driver behind this gloomy outlook is the government's plan to raise taxes as part of its efforts to rein in the country's public finances. Chancellor Rachel Reeves is expected to announce a range of tax hikes, including potential increases in National Insurance and income tax, in a bid to close a fiscal "blackhole" estimated to be as large as £40 billion.

While the specifics of the upcoming budget have not yet been confirmed, the growing likelihood of these tax measures has prompted analysts at Morningstar to revise their growth projections for the UK. Morningstar UK economist Grant Slade warned that the "fiscal stance tightening in 2026" and the expected income tax hike are set to weigh heavily on the country's economic growth.