09 June 2026
The latest Economic Forecast from the Confederation of British Industry has revised down its expectations for UK growth, warning that geopolitical tensions in the Middle East and higher energy costs are set to weigh on households and businesses through 2027.
The CBI now forecasts UK GDP growth of 1.1% in 2026 and 0.9% in 2027, down from its previous projections of 1.3% and 1.5%. The downgrade primarily reflects the economic fallout from the Iran conflict, which has driven up global energy prices, disrupted supply chains, and added to uncertainty for businesses and consumers.
Despite strong GDP growth in the first quarter of 2026, CBI business surveys report that underlying momentum remains subdued across much of the private sector as global shocks compound domestic headwinds.
The CBI’s latest UK Economic Forecast shows:
- Inflation to increase towards 4% by the end of 2026
- Business investment to contract amid high costs and elevated uncertainty
- Consumer spending to slow as real incomes stagnate
- Bank Rate to remain at 3.75% through 2027
- Unemployment is forecast to rise to 5.5%
- Private sector hiring set to remain subdued through 2027
Inflation Set to Rise Again
The CBI expects inflation to increase towards 4% by the end of 2026, driven primarily by higher fuel and household energy costs, alongside rising prices for energy-intensive goods and services.
While inflationary pressures are expected to be less severe than those experienced during the 2022 energy crisis, higher living costs will erode household incomes growth and keep consumer confidence muted.
Businesses Face Renewed Headwinds
Higher prices of energy, transportation, and materials are placing additional pressure on businesses already facing elevated labour and borrowing costs.
Business investment is projected to contract through much of the forecast period due to weak demand, squeezed margins, and heightened uncertainty.
Many companies are increasingly focusing investment on resilience measures, including automation, cyber security and supply-chain diversification.
Interest Rates Expected to Remain on Hold
The CBI expects the Bank of England’s Monetary Policy Committee to maintain Bank Rate at 3.75% through 2027, as it balances inflation risks arising from the current energy shock against weak economic growth and a cooling labour market.
Labour Market Continues to Cool
The labour market is expected to weaken further over the coming year, with the unemployment rate forecast to rise to 5.5% in late 2026 and early 2027.
Private Sector Losing Momentum
CBI survey data point to broad-based declines in business activity and continued caution on recruitment, with many firms freezing hiring or only replacing leavers selectively.
Private sector employment is expected to remain broadly flat throughout the forecast period, held back by high labour costs and lacklustre demand.
At the same time, government spending and employment are expected to continue growing at a steady pace, highlighting a divergence between public and private sector prospects.
The CBI warns that this trend is not sustainable for a dynamic, high-growth economy, with the private sector essential to driving productive investment, creating the jobs of the future, and raising living standards.
Louise Hellem, Chief Economist, CBI, said:
“What’s happening around the world is compounding the UK’s low-growth story. We saw weak momentum throughout 2025, but if it weren’t for the latest global shocks, we could be having a much more positive conversation about the economy today.
“Last year it was tariffs and this year it’s the conflict in the Middle East. The reality is that a world of elevated uncertainty and volatility is no longer the exception, it’s the norm – the backdrop against which businesses must operate.
“That makes getting the domestic fundamentals right more important than ever. You cannot build growth by continually increasing the tax burden on business, and you cannot solve the cost-of-living challenge without tackling the cost of doing business.
“Firms across the country have demonstrated resilience in the face of recent shocks, but, for many, costs are reaching a tipping point. Policymakers must put business-led growth at the heart of its strategy, as a thriving private sector is what creates sustainable growth, good jobs, and long-term prosperity.”
Policy Action Needed to Unlock Private Sector Growth
The CBI is calling on government to take urgent action to restore business confidence and unlock business-led growth, including reducing cost pressures, that will boost business’ confidence to hire and especially reducing the tax burden on firms. Last year, our data shows business paid almost £345 billion in tax. That’s the Department of Health and the schools’ budget in England, plus the entire UK defence budget combined.
While the UK faces a challenging global environment, the CBI stresses that domestic policy will be critical in determining whether the economy can weather global headwinds and regain momentum towards sustainable growth.