The British Chambers of Commerce has cut its UK growth forecast and warned that business investment will contract this year, as higher costs, weaker trade, and renewed geopolitical disruption weigh on company confidence.
In its latest Economic Forecast, the business group said UK GDP is now expected to grow by 0.9% in 2026, down from its previous forecast of 1.0%. Growth is then expected to remain subdued at 1.0% in 2027 before rising to 1.3% in 2028.
Behind the headline figure, the outlook for company investment has deteriorated. Business investment is forecast to fall by 2.2% in 2026 and by 0.1% in 2027, before returning to growth of 2.3% in 2028. Exports are also expected to fall by 0.2% this year, reversing the 0.7% growth expected in the previous forecast.
Inflation is now forecast to peak at 3.8% by the end of 2026, compared with 2.7% in the earlier forecast, before easing to 2.3% by the fourth quarter of 2027 and 2.0% by the end of 2028. The BCC said higher energy prices and shipping costs linked to the Middle East conflict are the main drivers of the revised inflation outlook.
Labour market projections add further pressure to the forecast. Unemployment is expected to rise to 5.2% in 2026 and 5.5% in 2027, while youth unemployment is forecast to reach 16.9% this year and 17.8% next year. The BCC said labour costs and AI adoption are eroding entry-level jobs, raising concern about the future skills pipeline.
Services remain the strongest part of the economy, with predicted growth of 1.3% this year. Construction is expected to contract by 1.0% in 2026, while manufacturing is forecast to grow by 0.8% after a stronger first half driven by restocking gives way to pressure from input costs.
David Bharier, deputy director of economics and insights at the BCC, said: “The UK is not in recession, but the economy remains trapped in a cycle where each recovery is interrupted before gaining traction.”
Evidence of that caution has been building across the labour market and investment landscape. Research showing UK employers putting costs before growth has already pointed to a defensive shift in hiring and expansion plans, with cost management taking priority over market share and productivity for many organisations.
That defensive posture is becoming more expensive to maintain. Companies are still carrying higher wage bills after increases to employer National Insurance and the National Minimum Wage, while energy and logistics exposure has become harder to price as conflict risk feeds into shipping and commodity markets. Delay can look rational under those conditions, even when productivity, digitisation, and skills investment remain necessary.
The BCC forecast also complicates the monetary policy backdrop. Inflation is expected to rise again, but the weakness in growth and employment leaves the Bank of England with a difficult balance. Higher interest rates would risk deepening the investment freeze, while an earlier easing cycle could leave companies and households exposed to more persistent price pressure if energy and shipping costs continue to rise.
Cash preservation, working capital, and the sequencing of capital expenditure are likely to dominate near-term planning. Projects that reduce costs or improve operational resilience may still go ahead, while discretionary expansion, new hiring, and export-led growth plans are more vulnerable to delay. Investment weakness can then become self-reinforcing: the longer businesses hold back, the harder it becomes to unlock the productivity gains needed to lift the growth path.
Trade exposure adds another layer of risk. The BCC expects exports to fall this year before returning to 1.3% growth in 2027, with the outlook dependent on the course of the Middle East conflict and the effect of disruption around the Strait of Hormuz. Manufacturers, wholesalers, logistics companies, and exporters are already managing tariff uncertainty, fragile demand, and higher shipping costs.
The weaker outlook leaves the UK facing a capital allocation problem, a workforce pipeline problem, and a trade resilience problem at the same time. Recession may be avoided, but the BCC’s numbers suggest companies are entering the second half of 2026 with limited room for error and little confidence that conditions will stabilise quickly.
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