BCC Economic Forecast: Global Turmoil to Hit Growth and Push Up Inflation

The latest British Chambers of Commerce (BCC) economic forecast suggests slow growth in 2026, higher inflation due to the Middle East crisis, and rising unemployment as the labour market softens.  

The BCC forecast is the first economic assessment by a business organisation since last week’s Spring Statement and renewed conflict in the Middle East. 

While the current geopolitical situation remains highly uncertain, and could change the economic outlook considerably, the key points in the forecast are:  

• GDP in 2026 revised down to 1.0% (from 1.2% in the previous forecast), with growth forecast of 1.3% in 2027, and 1.1% in 2028. 

 • Global uncertainty is expected to push UK inflation higher than expected, reaching 2.7%, before easing to 1.9% in 2027. 

 • Unemployment is expected to increase to 5.5% in 2026 (up from 5.1% in the previous forecast), and stay at that rate through 2027, due to persistent high labour costs and hiring uncertainty. 

 • The interest rate is expected to remain at 3.75% this year, before cuts to 3.25% by the end of 2027. 

 • Exports are projected to grow by just 0.7% in 2026 (down from 1.8% in the last forecast), as global uncertainty hits UK trade.  

UK economic outlook       

UK GDP is expected to grow by only 1.0% in 2026, reflecting a landscape of weak productivity, business investment, consumer spending, and ongoing global uncertainty. It is then forecast to pick up to 1.3% in 2027 and then 1.1% in 2028. 

The services sector continues to drive the UK’s limited GDP growth. However, even the pace of services growth is forecast to ease, to 1.2%. Construction and manufacturing are forecast to contract this year, by –1.3% and –0.3% respectively.   

Business investment is expected to flatline this year (0%), a revision downwards from the previous forecast (0.9%). It is expected to pick up again, to 1.3% in 2027. The rapid adoption of AI that the BCC has seen from its own evidence could support productivity gains, but this is likely to begin beyond 2028. 

While public finances have recently performed slightly better than expected, limited fiscal headroom means there remains a risk of further consolidation later in the forecast period. 

Iran conflict could drive up inflation 

 Higher oil and gas prices linked to the current conflict in the Middle East are expected to push CPI inflation up to 2.7% by the end of 2026 (compared to 2.1% in the previous forecast). Energy prices are assumed to rise in the near term before easing later in the forecast period. Inflation is then forecast to ease back towards the Bank of England’s target in 2027, slowing to 1.9% by Q4 2027, as energy prices fall and wage growth moderates.  

In the short term, wage growth is expected to remain elevated through 2026, staying just below 4%, before easing towards a more sustainable rate below 3% during 2027. 

The near-term inflation path suggests the Bank of England may hold off further rate cuts, with the base rate forecast to remain at 3.75% in 2026. The forecast suggests the rate will fall to 3.25% in 2027.  

Unemployment to rise further in 2026 

 The BCC expects the unemployment rate to rise to 5.5% in 2026 (up from the previous projection of 5.1%) with high labour costs dampening the hiring appetite of business. Unemployment is expected to remain elevated at 5.5% next year, before easing to 5.3% in 2028.  

Youth unemployment remains an area of concern as labour costs and AI erode entry level jobs. It is expected to be 17% in 2026, peaking at 17.1% in 2027 before falling to 16.7% in 2028.     

Trade outlook remains subdued  

 Export growth is forecast to slow to 0.7% this year (a downgrade from 1.8% in the last forecast). The downgrade reflects the impact of deepening global uncertainty, notably from the crisis in the Middle East and US tariff uncertainty.  

The forecast for imports in 2026 has also been downgraded to 0.6% (from 1.4% in the previous forecast), reflecting weaker consumer demand and the depreciation in sterling. While exports are also expected to slow, the reduction in import growth means the overall contribution of net trade to GDP is expected to remain broadly stable, at around –2.4% in 2026 and at a similar level through the forecast period. 

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