Growth Above Expectations, But Risks Ahead
Since our last Outlook the economic dataflow has surprised on the upside. Consequently, we have upgraded our 2026 growth forecast to 1.5%. However, the external environment has deteriorated recently. Renewed tensions in the Gulf have pushed energy prices back up, forcing a material increase to our 2027 inflation forecast. We expect the BoE to hike rates soon, with two 25bp increases across Q4 and Q1. These factors will weigh on the nascent recovery in early 2027, slowing growth and triggering a slight uptick in unemployment. Growth should recover in H2 next year as energy prices fall back. Risks remain tilted to the downside due to geopolitical tensions. Against this backdrop the upcoming Budget is likely to take a cautious approach.
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