The UK’s economic outlook has improved marginally for 2026, but weak business investment, subdued exports, and persistent cost pressures are expected to constrain growth over the next two years.
The British Chambers of Commerce has raised its forecast for UK GDP growth this year from 0.9% to 1.0%, reflecting stronger-than-expected resilience during the first half of 2026. It expects growth to remain at 1.0% in 2027 before increasing to 1.3% in 2028.
The upgrade does not translate into a strong investment outlook. Business investment is forecast to contract by 0.2% this year, followed by growth of only 0.4% in 2027 and 1.2% in 2028.
The 2026 investment forecast is considerably better than the BCC’s previous estimate of a 2.2% contraction, following stronger Office for National Statistics data in the second quarter. Its own business surveys, however, point to a more uneven picture beneath the aggregate figure.
Only 17% of companies surveyed by the organisation said they were increasing investment, the lowest proportion since the pandemic. The BCC said the improvement in headline investment data appears to reflect stronger activity among larger businesses while smaller companies continue to face pressure from labour costs and taxation.
David Bharier, deputy director of economics and insights at the BCC, said: “But growth remains subdued, and rests on consumption, not investment.”
Private consumption is expected to provide much of the support for GDP during the forecast period. Net trade is projected to remain a drag, with exports increasing by just 0.4% in 2026 before strengthening to 1.3% next year and 2.4% in 2028.
The sector picture is also uneven. Services output is forecast to grow 1.5% this year, while construction is expected to contract by 1.3%. Manufacturing is projected to expand by 1.0%, slightly ahead of the BCC’s earlier estimate.
Inflation remains a constraint on the outlook. The BCC expects consumer price inflation to reach 3.6% in the final quarter of 2026 before declining to 2.3% by the end of 2027. Higher household energy costs linked to geopolitical disruption remain a central risk, while food prices could add further pressure following dry weather in parts of the UK.
The organisation expects Bank Rate to remain at 3.75% over the next two years, although it cautioned that food inflation, energy prices, and international conflict could alter the interest-rate path.
Higher borrowing costs and limited confidence create a difficult environment for capital expenditure. Investment decisions typically depend on businesses having sufficient visibility over demand, operating costs, financing conditions, and future tax treatment. When several of those variables remain uncertain, discretionary projects can be deferred even while headline GDP continues to expand.
The labour market provides another source of pressure. Unemployment is forecast to end 2026 at 5.0% and peak at 5.4% in 2027. Youth unemployment is expected to rise further, reaching 17.6% next year.
A recovery driven predominantly by consumption can support near-term activity, but sustained improvements in productive capacity depend on capital being committed to technology, equipment, skills, property, and expansion. The BCC’s forecast points to a widening difference between economic resilience and the investment needed to strengthen longer-term growth.
Trade forms another part of the same constraint. Companies exposed to international markets are dealing with geopolitical uncertainty and tariffs while domestic cost pressures continue to affect margins. Imports are forecast to grow faster than exports this year, leaving net trade as a negative contribution to the economy.
The uneven investment picture also creates regional and sector differences. Large businesses capable of funding projects internally may be better positioned to proceed with capital programmes, while smaller employers facing weaker margins and more expensive borrowing have fewer options for absorbing short-term uncertainty.
That divergence can become self-reinforcing if delayed investment slows productivity improvements. Businesses that postpone equipment upgrades, digital systems, automation, or additional capacity may protect cash in the short term but remain exposed to higher operating costs for longer.
Attention will increasingly turn to the next Budget and whether fiscal measures alter the investment calculation for UK companies. With GDP still expected to expand only slowly, stronger business investment would need to carry more of the burden if growth is to become less dependent on household consumption.
You must be logged in to post a comment.