The Confederation of British Industry (CBI) has downgraded its forecast for UK economic growth and warned that unemployment is set to reach its highest level in more than a decade as rising energy costs linked to the Iran conflict continue to weigh on businesses and households.
The business group expects consumer price inflation to peak at 3.7% during the first quarter of next year, up from 2.8% recorded in April and broadly in line with forecasts from the Bank of England.
“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,” CBI Chief Economist Louise Hellem said.
- UK GDP is forecast to grow by 1.1% in 2026 and 0.9% in 2027, representing downgrades of 0.2 and 0.6 percentage points respectively compared with the CBI’s forecasts published in December last year.
- Unemployment is expected to rise to 2.0 million people, or 5.5% of the workforce, marking its highest level since mid-2015 and exceeding the CBI’s previous forecast of 5%.
- The Bank of England is expected to keep interest rates unchanged at 3.75% throughout both 2026 and 2027, according to the latest forecast.
- The CBI’s outlook broadly mirrors recent economic forecasts published by both the OECD and the IMF, which have also highlighted slower growth prospects and ongoing economic challenges.
- CBI Chief Executive Rain Newton-Smith recently urged Prime Minister Keir Starmer’s government not to treat businesses as a “cash cow”, warning that the tax burden on companies has reached a record high.
