UK Outlook – May 2026

Growth Outlook Deteriorates Amid Energy Shock

We have reduced our growth forecasts due to the negative impact of the US-Iran conflict and higher energy prices on the UK economy. We now expect GDP growth of 0.8% this year and 1.0% next year (versus 1.1% and 1.4% previously). Inflation, which had been easing, now looks set to increase and remain above 3% into next year, putting pressure on consumers and businesses. Unemployment is likely to rise to around 5 ½% over the coming quarters, remaining close to that level in 2027. Given weak demand and labour market slack we expect the BoE to leave rates on hold for the balance of this year, before easing a bit in 2027. There are a number of downside risks to the outlook, most obviously an escalation of the conflict in the Middle East, while domestic political uncertainty has increased.

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Bank of Ireland UK Outlook May 2026