UK business group cuts growth forecast as unemployment seen rising
Britain's growth outlook is weakening as higher energy costs and pressure on household finances add to an already sluggish economy. The Confederation of British Industry now expects unemployment to climb to its highest level in more than a decade while inflation accelerates into early next year.
Highlights
- Confederation of British Industry cuts UK GDP growth forecast to 1.1% for 2026 and 0.9% for 2027, down 0.2 and 0.6 percentage points respectively.
- CBI projects UK consumer price inflation to peak at 3.7% in Q1 2025, up from 2.8% in April, citing global factors and energy prices.
- UK unemployment is expected to peak at 2.0 million, or 5.5%, the highest since mid-2015, while Bank of England rates remain at 3.75% through 2027.
Forecast downgrade and inflation outlook
As reported by Reuters, the Confederation of British Industry lowers its forecast for UK economic growth and says the Iran war is pushing up energy prices and squeezing living standards.The business lobby group now expects UK GDP to grow by 1.1% in 2026 and by 0.9% in 2027. That is 0.2 percentage points and 0.6 percentage points below its forecast from last December.
Consumer price inflation is set to peak at 3.7% in the first quarter of next year, up from 2.8% in April and broadly in line with the increase projected by the Bank of England. CBI Chief Economist Louise Hellem says global developments are compounding the UK's low-growth backdrop after weak momentum through 2025.
Labour market and policy implications
The CBI expects unemployment to peak at 2.0 million people, or 5.5% of the workforce, which would be the highest level since mid-2015. Its previous forecast had put the peak at 5.0%.The group also expects the Bank of England to leave interest rates unchanged at 3.75% through 2026 and 2027. Its latest projections are similar to forecasts published over the past month by the OECD and the IMF.
The update comes after CBI Chief Executive Rain Newton-Smith last week urged Prime Minister Keir Starmer's government not to treat business as "a cash tap". She said companies' contribution to overall taxation has risen to a record high.
In our earlier article on Labour’s internal unity drive, we explained how Keir Starmer has been urging senior figures to project discipline and a common message ahead of elections, as factional strains become more visible. We also highlighted how Andy Burnham’s growing grassroots backing and distance from the central party line has added to leadership concerns that public splits could weaken Labour’s strategy and authority.
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