Why my predictions for 2025 fell short – and six things likely to shape the 2026 economy

If my predictions for 2025 were anything to go by, precognition might not be my strongest suit. Still, given how often the forecasters who actually influence policy and the pound in your pocket get it wrong, I didn’t do terribly badly…

Prediction number one was that the Office for National Statistics (ONS) would confirm a recession. That requires two consecutive quarters of negative growth. While the economy has lately hit the skids – shrinking by 0.1 per cent in October and by the same amount over the three months to October – the UK has, so far, avoided that fate. By global standards, our economy is a tortoise. But the Bank of England’s December rate cut should at least see it inching forward.

That said, as part of prediction number one, I also said the Organisation for Economic Cooperation and Development (OECD) would revise down its UK growth forecast from a frothy 1.75 per cent – and that you could “bet your house on it”. Phew: that estimate is now down to 1.4 per cent. So, half a point. I’ll take it.

The same applies to my second guess: the Bank of England would cut rates, but only twice. December’s 0.25 per cent reduction was the fourth of the year. So I score half a point for calling the direction of travel, but lose marks on the detail.

Number three was that inflation would peak above 3 per cent and that forecasts would be revised upwards. Ding, ding, ding. The actual number was 3.8 per cent. Point to me.

Ditto number four: Rachel Reeves would have to borrow – and borrow big. After months in which borrowing smashed expectations and records, I’m firmly in the money. November showed some improvement, but the figure was still worse than forecast. Another point.

Sadly, number five was a bust. I said Donald Trump would back away from his import tariffs. He has gone back and forth on the amounts and lifted them on some key imports, but that’s not enough to give myself a half a point. He remains as addicted to tariffs as he is to shameless self-promotion.

Nor was I right about the economy improving in the second half of the year. It hasn’t. That leaves me with a grand total of three out of six. At least I got something right.

So, back into this year’s session in the clairvoyant’s (decidedly wonky) chair...

Prediction One

Read my lips: no new taxes. All right, I’ll hedge that slightly. But Rachel Reeves – or her successor (see below) – won’t dare clobber voters for a third straight Budget. It would be political suicide. After the 2026 Budget, our wallets should finally get a chance to breathe.

Prediction Two

Inflation will fall further, but the Bank of England will miss its 2 per cent target. This is the mirror image of last year’s – correct – prediction. This time, I’ve got evidence on my side. Reeves has tried to soften the blow with a handful of price freezes. The Office for Budget Responsibility (OBR) says holding rail fares, fuel duty and easing energy bills would shave 0.4 percentage points off the CPI. On this one, the forecasters may actually be right. For once.

Prediction Three

Interest rates will fall further, to 3.25 per cent. Yes, I’m calling for two cuts again. Call it caution rather than stubbornness. The Bank of England’s rate-setting Monetary Policy Committee remains split, and December’s knife-edge 5-4 vote showed just how divided it is. Rates will be held in February, the hawks will circle – and unemployment will keep creeping up, though not for a full year.

Prediction Four

We will have a new chancellor by year’s end. Keir Starmer isn’t cutting the mustard as prime minister, and Labour is in a deep hole. True, a revolving door at No 10 is never a good look. But the local elections are likely to be brutal. With some polls showing the Greens – led by Zach “I’ll ask Putin to give up his nukes” Polanski – edging ahead, MPs will act to save their skins. If Starmer goes, Reeves goes with him. And while she’s bad, the names being floated as replacements worry me even more. Ed Miliband, anyone? Lord help us.

Prediction Five

Gold and bitcoin will run hot on the investment markets, with silver close behind. Gold and silver have already hit record levels and remain near all-time highs, while bitcoin has lagged. But the case for further gains is strong. Priced in dollars, they hedge against US inflation – and US inflation is heading higher. Trump wants a compliant Federal Reserve chair to do his bidding on interest rates and he remains wedded to tariffs. Higher prices will follow, and investors will go looking for cover.

Prediction Six

Things will improve in the second half of next year. I admit I have even less evidence for this than I did a year ago – when I was spectacularly wrong. This is hope talking, not expectation. But what the heck: if the Budget proves less painful and interest rates end the year lower than they began, the economy should pick up a little bit.

Wait – did someone spike my coffee?

Happy new year!