The United Kingdom is projected to become poorer than both Hong Kong and Finland within two years, according to a stark economic forecast that blames the government's tax and spending policies for holding back growth.
Sliding Down the Global Rankings
The Centre for Economics and Business Research (CEBR) predicts the UK will fall from 19th to 21st place in a global league table measuring gross domestic product (GDP) per head in 2026. This decline will occur by the end of the Labour government's first full year in office.
While Britain remains the world's sixth-largest economy overall, this measure of individual wealth tells a different story. The UK already trails nations like Iceland, the Netherlands, and Israel on this metric and is set to drop further. Luxembourg tops the table, with the US in seventh and Australia in 13th place. Notably, even crisis-ridden Germany sits ahead of Britain in 18th, while France lags in 26th.
Tax and Spend Policies Blamed for Stagnation
The CEBR report directly attributes the gloomy outlook to the Government's fiscal strategy. It states that while increased public spending has provided some economic boost, this "has needed to be financed" through a series of tax rises implemented since the election.
Chancellor Rachel Reeves bears significant responsibility for this approach, which the report argues is "crowding out the private sector in the near term" by increasing uncertainty and business costs. This comes as companies grapple with a combination of anti-growth measures:
- Hikes in employer National Insurance contributions.
- Increases to the national minimum wage.
- A botched reform of business rates.
- A raft of new workers' rights coming into force.
As a consequence, economic growth has stagnated and unemployment has climbed. The report forecasts an average unemployment rate of 4.8% for 2025, which would be the highest level since 2016. Recent official figures showed unemployment had already risen to 5.1% in the three months to October.
A Weak Outlook with High Inflation
The recent Budget did little to alter the near-term prospects, offering minimal support for growth. Meanwhile, the public sector continues to expand, with state employment reaching 6.18 million in September—an increase of 62,000 in a year.
CEBR forecasts UK growth of just 1.4% in 2026. Although this is ahead of other G7 nations, it falls "far short of historical trends". Compounding the problem, the UK is suffering one of the highest inflation rates among developed markets in 2025, which erodes real spending power and dampens consumer activity.
The report concludes with a sobering five-year outlook, predicting "subpar" annual GDP growth averaging only 1.5%. This sustained period of weak performance underscores the significant economic challenges facing the country.
