10 PwC UK economic predictions for 2025: ‘Subtle yet significant transformation’ for the UK in 2025

PwC has today released its economic predictions for 2025 forecasting a mixed picture for the UK economy. It highlights some areas where progress is being seen and others where sectors are falling behind. The predictions cover a diverse range of topics from economic growth and house prices to renewable energy and defence. The full predictions report can be seen here: https://www.pwc.co.uk/economic-services/documents/predictions-for-the-uk-economy-2025.pdf

Barret Kupelian, chief economist, PwC says:

“Last year, we predicted 2024 would see the UK turn a page, and in many ways it did - inflation returned back to target levels, there was some progress on regional growth and real incomes grew. This year, our predictions show that the UK will undergo subtle yet significant transformation in both its internal and external environment. 

“On the external front, we expect to see economic power shift eastwards on the European continent, with the collective economy of the six largest Eastern European EU ‘newcomers’ to surpass the UK in terms of economic size. 

“But domestically, we see bright spots appearing. We expect to see continued strength in services trade next year, with services exports exceeding the half a trillion pound mark, and solid progress towards a greener economy, with crude oil production falling to its lowest level since 1977 and wind power generating enough electricity to power the UK for a quarter of the year. Meanwhile, our population is getting greyer and will require more propping up by the public purse, which will place even more pressure on already constrained public finances.” 

Macro trends

1. Eastern Europe to surpass UK’s longtime lead. The six largest EU ‘newcomers’ that joined from 2004 onwards - Poland, Romania, Czech Republic, Hungary, Bulgaria and Croatia - will collectively surpass the UK’s GDP in 2025, according to PwC analysis of IMF forecasts. In 2004, the UK economy was 40% larger than the combined six countries, illustrating rising economic power in Eastern Europe.
2. UK to drop in NATO defence spending ranks. The UK’s defence spending as a share of GDP will increase from 2.3% in 2022 to 2.4% in 2025 (NATO average is 2.3%). However, the UK is expected to fall in the overall ranking of spend by NATO member states in 2025. Poland, Estonia and the US will make up the top three defence spending NATO countries in 2025, by percentage of GDP. 
3. Britain’s golden engine: Services exports to smash half a trillion, c.20% of UK GDP. UK services exports will exceed half a trillion pounds in 2025, with Finance & Insurance and Other Business Services making up almost two-thirds of this figure. In 2025, total UK services exports will be double their levels in 2015, when they were just over £250bn.
4. Silver Surge: UK faces into a 'greyer' future. The UK will have over 14 million people aged 65 years and over in 2025, equivalent to one-fifth of the population, and around a third of the working-age population. In 2000, this figure was just 16%. The demographic split varies regionally across the UK regions, with six in ten of people aged 65 and over situated in either London, the South East or the South West. The South West will have more over 65s than Scotland and Northern Ireland combined.
5. Priced out? House prices in six UK regions to break the £250k barrier. UK house prices are projected to grow by 3-4% in 2025. London’s average house price is expected to reach around £535k, while half of the UK regions will surpass the £250k on an annual average basis. Only Northern Ireland and the North East will remain below £200k, reflecting continued regional disparities in house prices.

Sector trends

1. Bricks without builders: Construction labour squeeze intensifies. For the first time this century, construction vacancies per 100 jobs are set to overtake the UK labour market average in 2025, as the Government galvanises house-building while relevant skills remain under pressure. 

2. Speeding to standstill: Traffic crawls to 55mph. The average speed on English roads will fall to around 55mph, as the number of vehicles on the roads hits an all-time high. Ten years ago in 2015, the average road speed across the SRN was 59mph.

3. Driving the future: Green cars to hit 50% of new registrations. Total car production will remain just shy of one million vehicles, a significant reduction compared to the 2016 high of 1.8 million, but a slight improvement from the recent 2022 low of 877k. Separately, the transition to hybrid and electric cars continues, as new car registrations for petrol and diesel cars continues to fall. From 2019 to 2025, the annual average growth rate in car registrations will be: petrol (-4.8%), diesel (-20.5%), EV (+46.2%), hybrid (+25.0%).

4. A breath of fresh air: UK wind generation to hit 95 TWh. Total electricity generated from wind power is estimated to create the equivalent of 14.8 weeks, more than three months of the year, in 2025. This is up 135% compared to 2015 and is a 15% year-on-year increase (2024 to 25). 

5. Crude reality: UK oil production to drop to historic low. UK annual indigenous crude oil production is likely to drop to less than 30 million tonnes next year, the lowest recorded level since 1977, shortly after North Sea oil production began in 1975. This is down considerably from the peak of 137m tonnes in 1999, meaning revenues from oil and gas will be less than 0.2% of UK GDP.

Ends.

Notes to editors

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