The latest
CBI Economic Forecast has found that businesses are ‘swimming against the powerful tides of weak demand, elevated labour and energy costs, and ongoing domestic and global uncertainty’. In spite of these challenges, the
CBI has upgraded its 2026 GDP growth projection from 1.0% to 1.3%, with the upward revision driven largely by a temporary boost to Government expenditure following the Autumn Budget. However, solid headline GDP growth masks persistent weakness in private sector demand, and longer-term prospects will remain constrained by weak productivity and future fiscal tightening.
While the economy began 2025 on a firm note, momentum has softened significantly through the year – with CBI business surveys providing further evidence of consistent sluggishness in underlying activity. Looking ahead, the Economic Forecast highlights only modest growth in household spending, as real incomes growth slows, and weak business investment as key challenges for the longer-term outlook.
The CBI’s latest UK Economic Forecast shows: UK GDP growth in 2025 is projected to be 1.4% - an upgrade from our June forecast of 1.2% that reflects historical data revisions; UK GDP growth in 2026 is projected to rise by 1.3% - an upgrade from our June forecast of 1.0%; moderate GDP growth of 1.5% is expected through 2027; household spending is expected to remain modest, as slower real income growth and lingering caution weigh on consumption; business investment is expected to stay subdued through 2027, reflecting the impact of weak demand, high costs, and both domestic and international uncertainty dampening appetite to invest; inflation is projected to ease steadily, helped by fading price pressures, reaching 2.6% in 2026 and 2.3% in 2027; private sector employment growth is expected to remain muted, with higher labour costs and soft activity weighing on hiring; the unemployment rate is expected to hover around 5%, which is still low relative to historical standards; and two further Bank Rate cuts are expected (in December 2025 and early 2026), taking interest rates to 3.5%.
Louise Hellem, the CBI’s chief economist, said: “While it is welcome to see our growth forecast upgraded for next year, the mood music reads more ‘cautious optimism’ than ‘cause for celebration’. The momentum that we saw in early 2025 has clearly faded through the year, and our revised growth forecast has mostly been driven by a near-term boost in Government spending and investment – rather than addressing the underlying challenges that are holding the rest of the economy back.
“The forecast shows that the UK economy is continuing to face significant and persistent headwinds. Demand is fragile, domestic and global uncertainty is keeping a lid on business investment, and the cumulative burden of rising employment costs – from NLW and NICs hikes – is hitting firms’ profits and hiring plans. With businesses facing these combined pressures, we are unlikely to achieve the jump in activity needed to lift the UK's long-term growth ceiling.”
She concluded: “While the recent Budget did deliver much needed stability, too many bold choices were left unaddressed. If the Government is serious about restoring business confidence and turbo-charging its own growth mission, it must urgently address some of the biggest barriers to competitiveness — particularly crippling business energy costs, a costly and overcomplicated business tax regime, and uncertainty around future employment costs.”