Rachel Reeves’s bombshell Budget has stifled economic growth and dampened business activity in the UK, a major report warns today.

The Chancellor’s October tax raid means GDP forecasts are lower than they were a year ago.

Furthermore, Labour’s employment reforms will hamper investment over the coming years.

The bleak outlook is revealed in the latest data from the influential Centre for Economic and Business Research (CEBR).

Despite forecasting accelerating economic growth for the next couple of years, this will be at rates lower than previously predicted.

The CEBR expects GDP will grow by 1.3% in 2025 and 1.4% for 2026. But this is lower than the 1.9% and 1.6% predicted at the same time last year.

Its report says the weaker forecasts reflect the reaction to Ms Reeves Budget.

“These downward revisions largely reflect the expected responses to policy changes announced at the new government’s inaugural Budget, including changes to Capital Gains Tax and employers’ National Insurance Contributions,” the report says.

“Such changes are expected to dampen private sector activity, notably on the investment front.”

The details are set out today in the CEBR’s latest update of the annual World Economic League Table (WELT).

The report also notes that the UK has fallen to 28th place in the IMD World Competitiveness Ranking in 2024, down from 23rd in 2022, suggesting that the regulatory environment has made the country less conducive to business activity.

In the longer term, the economy is expected to head towards a growth rate of 1.8%, the CEBR says.

This would see the UK economy retaining its WELT ranking of sixth over the next 15 years, a position it has occupied since 2021.

The US tops the table, with China (2), Japan (3), Germany (4), India (5), France (7), Italy (8), Canada (9) and Brazil (10).

The mediocre assessment comes just days after official ONS data revealed that growth has flatline, fuelling fresh warnings Labour is on the brink of sparking a recession.

In the first three months the party was in power, Britain’s economy did not grow at all.

This figure for July to September was a revised down estimate, after it was previously believed the economy grew 0.1% during this period.

The UK and Italy were the only G7 countries to register no growth in that time, performing significantly worse than rivals such as Germany, France and the US.

Earlier this week businesses accused Labour of driving the nation into a recession by creating a “hostile climate for aspiration, investment and growth”.

The Chancellor is also putting off businesses from hiring staff, the Confederation of British Industry said.

Inflation has also risen for the past two months, hitting 2.6% in November.

Richard Fuller, Shadow Chief Secretary to the Treasury, said the Chancellor is dragging the UK back to the “dark days” of the 1970s when the country was crippled by an underperforming economy and the Winter of Discontent.

“She appears to have taken the UK back to the dark days of the 1970s with her horror show budget,” he said.

“Her punishing jobs tax, death tax combined with Labour’s job destroying union charter seem intent on crushing businesses and wealth creators across the country rather than inspiring the best in Britain’s economy.”

A Treasury Spokesperson said: “After delivering a budget to stabilise the public finances we have wiped the slate clean, and can focus on delivering our Plan For Change which includes kickstarting economic growth though investment and reform.

“The OBR forecasts 2.0% growth in 2025 while the recent OECD upgrade will mean the UK is the fastest growing European economy in the G7 over the next three years.”

The CEBR’s report says Donald Trump’s return to the White House and the possibility of US tariffs could have a major impact on the global economy, the report warns.

Christopher Breen, Head of Economic Insight, said: “This year’s report finds that the global economic outlook is subject to a number of new realities. Increased protectionism is here to stay, as it is becoming increasingly necessary to boost self-sufficiency and reduce political disenfranchisement.

“However, the world is at risk of over-adjustment toward wide-ranging tariffs that benefit nobody.”