BCC Economic Forecast: Budget Unlikely to Be Growth Game-Changer

The latest British Chambers of Commerce (BCC) economic forecast suggests last month's Budget is unlikely to kickstart the UK economy. The first forecast by a major business organisation since the Chancellor's statement shows the UK's growth outlook will remain subdued. The key points:  

• GDP growth in 2025 revised up marginally to 1.4% (from 1.3% in the previous forecast), while GDP forecast for 2026 and 2027 remains unchanged at 1.2% and 1.5%. 

• Business investment is expected to grow by only 0.9% in 2026, before picking up to 1.5% in 2027. 

• Exports projected to increase by 1.8% in 2026 and 2.4% in 2027 (down from 3.3% and 3.2% in the last forecast).

• The inflation rate is forecast to ease to 2.1% in Q4 2026, before easing to 2% by the end of 2027.   

• The interest rate is expected to be 3.75% by the end of this year, and then only fall slightly to 3.5% by Q4 2026.   

UK Economic Outlook        

The UK economy is expected to grow by 1.4% in 2025, revised slightly up from the previous forecast of 1.3%, driven by strong public spending. However, GDP is expected to slow to 1.2% in 2026, before rising to 1.5% in 2027 – unchanged from the previous forecast, because of productivity challenges and cautious fiscal tightening.   

The growth picture varies significantly across sectors. Next year manufacturing is forecast to grow by 0.9%, construction 1.1% and services 1.3%. In 2027, growth in manufacturing is expected to be 1.8%, construction 1.9%, and services 1.6%.  

Business investment to fall significantly next year  

Business investment is forecast to suffer significantly next year – falling from expected growth of 3% in 2025, to just 0.9% in 2026. It is then expected to rise again to 1.5% in 2027. The projected weak levels of business investment are due to ongoing cost pressures on firms, highlighted in the BCC's business surveys, and the lack of direct growth measures in the Budget.   

Export growth to slow  

With global trade uncertainty continuing, export growth is expected to fall from 3.0% this year to 1.8% in 2026 (a downgrade from 3.3% in the last forecast). The downgrade reflects the global impact of tariffs and the lack of delivery yet on the proposed UK-EU reset.   

Imports are expected to grow by 3.8% this year, before falling to 1.4% in 2026, then up to 2.8% in 2027. This means net trade continues to contract, with figures of -0.9% this year and next, and -1.1% in 2027.  

Inflation to ease towards target  

The BCC forecast suggests inflation will continue to ease next year, with CPI at 2.1% by the end of 2026, with wage growth cooling and a softening overall labour market. Inflation is forecast to reach the Bank of England target of 2% by Q4 of 2027.   

With inflation easing, alongside a loosening labour market and weak growth, further interest rate cuts are likely, albeit modest. The interest rate is expected to be 3.75% by the end of this year and fall to only 3.50 by December 2026.    

Average earnings to continue easing  

Average earnings are expected to continue easing through the forecast period. Wage growth is anticipated to be 4.3% by the end of this year, falling gradually to 3.8% in 2026 and 3.5% in 2027 (down from 4.1% and 4.0% in the last forecast).   

Unemployment to rise further in 2026 

The forecast expects unemployment to rise to 5.1% in 2026, as the labour market continues to loosen. Firms will continue to face ongoing costs pressure, sluggish productivity and low output limiting recruitment appetite. The unemployment rate is then expected to ease to 4.8% in 2027.   

David Bharier, Head of Research at the British Chambers of Commerce said:  

“Our forecast suggests last month's Budget is unlikely to be a growth game-changer for the UK economy.  

“The outlook for SMEs in 2026 will continue to be challenging with business investment and export growth struggling. Inflationary pressures, specifically from rising labour and energy costs, are likely to persist, meaning only modest cuts in the interest rate. Unemployment will be a key indicator to track as labour costs rise and automation costs ease. 

“Taken together the forecast paints a picture of an economy remaining stuck in low gear. Businesses are showing remarkable resilience and innovation, but many are weighed down by political uncertainty and the cumulative cost pressures.  

“Delivery on growth is now key – the Government has published industrial, trade, and infrastructure strategies, and these must translate into action. 

“The UK is trapped in a low growth cycle, with consequences for both the fiscal and political landscape. Maximising the AI roll-out and global trading opportunities could help break the deadlock.” 

Commenting on the forecast, Vicky Pryce, Chair of the BCC Economic Advisory Council, said:     

“Businesses will be steering through choppy waters once again next year after a Budget that lacked the growth measures so desperately needed.  

“Getting inflation back down towards the Bank's 2% target is good news, but that masks the continuing cost pressures for businesses. Significant interest rate cuts, that would make a huge difference to businesses and households, are not guaranteed next year by any means.  

“Rising unemployment will be a key part of the economic landscape next year, pushing down consumer spending and presenting further challenges for firms of all sizes.” 

ENDS