BCC expects UK growth at 1.2% in 2026, 1.5% in 2027

However, for the next two years, BCC sees no major improvement in the economic outlook—growth is expected to be 1.2 per cent in 2026 and 1.5 per cent in 2027, unchanged from previous quarter, reflecting limited productivity gains and the continued effects of cautious fiscal tightening.

However, the modest improvement in growth is expected to draw some support from the budget’s investment-focused approach, BCC said in a release.

Business investment is projected to remain weak, rising only 0.9 per cent in 2026 and 1.5 per cent in 2027, as a result of weak demand conditions, additional cost pressures reducing margins and continued high uncertainty, causing businesses to delay their investment plans.

This combination continues to weigh on business confidence, leading many firms to delay or scale back their investment plans, it said.

Exports are expected to pick up this year by 3 per cent as a result of a strong first quarter (Q1) performance,  but more recently exports growth has slowed, with exports expected to remain weak in the next two years—1.8 per cent next year and 2.4 per cent in 2027.

The reason why exports are looking momentum is because of global demand, particularly in Europe, remains weak and the United Kingdom’s trade exposed sectors face tariff challenges.

Inflation is set to continue easing and is forecast to return to the Bank of England’s (BoE) 2-per cent target by the end of 2027, driven by slower wage growth and softer labour-market conditions. 

However, risks persist, including pressures from food prices and higher employment costs. With inflation cooling and growth subdued, the BoE is expected to cut interest rates in December 2025, with the bank rate projected to remain at 3.5 per cent through 2026 and 2027.

The labour market is loosening as firms respond to weak sales growth and higher wage costs from earlier inflation. Unemployment is expected to pick up next year by 5.1 per cent as businesses face weak demand and high employment costs, BCC noted.

Additionally, businesses have little incentive to expand payrolls, implying future employment gains will be minimal and unemployment may edge higher. Unemployment is then expected to slow down in 2027 to only 4.8 per cent.

BCC’s growth forecast for the next year is broadly in line with the November’s BoE and National Institute of Economic and Social Research (NIESR) forecasts projecting 1.2 per cent growth. In comparison, the Office of Budget Responsibility (OBR) remains more optimistic forecasting growth of 1.4 per cent in 2026.

In 2027, the BCC forecast of 1.5 per cent remains broadly consistent with the BoE and the OBR expecting growth of 1.6 per cent and 1.5 per cent respectively, while NIESR takes a more pessimistic stance at 1.2 per cent.

The country continues to face weak consumer demand, driven by squeezed incomes and frozen tax thresholds. At the same time, the labour market is loosening, with rising unemployment, falling vacancies, and slowing wage growth.

With businesses facing weak demand and high employment costs, further job cuts are expected to be seen, meaning labour-market conditions may remain subdued through 2026-27.

ALCHEMPro News Desk (DS)