The UK economy is poised for a significant downturn, with growth set to falter and unemployment projected to worsen, according to new forecasts from the Confederation of British Industry (CBI). The influential business group warns that the ongoing conflict in the Middle East and escalating energy costs are weighing heavily on consumers and businesses alike.
The CBI’s latest economic outlook paints a gloomy picture, predicting that an additional 200,000 Britons are on track to become unemployed. This would push the UK’s jobless rate to 5.5 per cent this year, equating to approximately two million people.
The Office for National Statistics most recently reported the unemployment rate at 5 per cent, or around 1.8 million individuals. Economists at the CBI attribute this weakening labour market to reduced business investment, driven by higher cost inflation and concerns over consumer spending. The forecast suggests a slight improvement to 5.3 per cent unemployment by 2027.
The organisation has also downgraded its growth projections for the next two years. UK gross domestic product (GDP) is now expected to slow from 1.4 per cent growth last year to 1.1 per cent in 2026, further decelerating to 0.9 per cent in 2027. This marks a notable reduction from previous forecasts, which had anticipated growth of 1.3 per cent this year and 1.5 per cent in 2027.
This downbeat assessment is largely attributed to the repercussions of the Middle East conflict, which has pushed inflation above earlier forecasts and dampened overall sentiment. Higher global energy prices, disrupted supply chains, and increased uncertainty for both businesses and consumers are all expected to impede economic growth.
Louise Hellem, chief economist at the CBI, commented: “What’s happening around the world is compounding the UK’s low-growth story. We saw weak momentum throughout 2025, but if it weren’t for the latest global shocks, we could be having a much more positive conversation about the economy today. Last year it was tariffs and this year it’s the conflict in the Middle East.”
The projections further indicate that inflation is likely to climb “towards 4 per cent” by the end of this year, as the impact of higher energy costs filters through to households and firms. UK consumer prices index (CPI) inflation was recorded at 2.8 per cent in April but is anticipated to accelerate in the coming months.
The CBI also expects the Bank of England to maintain interest rates at their current level of 3.75 per cent for the remainder of the year.
