The Confederation of British Industry (CBI) has issued a stark warning that UK economic growth will falter and unemployment will rise sharply, driven by the ongoing conflict in the Middle East and increasing energy costs that weigh on both consumers and businesses.
Unemployment Forecasts
The influential business group predicts that unemployment will climb to 5.5% this year, representing approximately two million people. This marks an increase from the current rate of 5%, or around 1.8 million, as reported by the Office for National Statistics. The CBI economists attribute this weakening labour market to reduced business investment amid higher cost inflation and concerns over consumer spending. They expect unemployment to ease slightly to about 5.3% by 2027.
Growth Projections Downgraded
The CBI has also downgraded its growth forecasts for the next two years. UK gross domestic product (GDP) is expected to slow from 1.4% growth last year to 1.1% in 2026 and further to 0.9% in 2027. Previously, the organisation had projected growth of 1.3% for this year and 1.5% for 2027.
Impact of Global Factors
The downbeat outlook is largely attributed to the Middle East conflict, which has driven inflation above forecasts and dampened sentiment. Higher global energy prices, disrupted supply chains, and increased uncertainty for businesses and consumers are all set to weigh on 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.”
Inflation and Interest Rates
The projections indicate that inflation is likely to increase “towards 4%” by the end of this year, as higher energy costs feed through to firms and households. The UK consumer prices index (CPI) inflation was most recently recorded at 2.8% in April but is expected to accelerate in the coming months. The CBI expects the Bank of England to maintain interest rates at their current level of 3.75% for the remainder of this year.
