The Chancellor Rachel Reeves is facing a significant economic setback as the Confederation of British Industry (CBI) warns that UK unemployment is set to jump and economic growth forecasts have been slashed. The influential business group predicts that around 200,000 more Britons are on track to become unemployed, pushing the unemployment rate to 5.5% this year, representing approximately two million people. This is a rise from the most recent rate of 5%, or around 1.8 million people, reported by the Office for National Statistics.
Declining Business Investment and Consumer Spending
CBI economists attribute the weakening jobs market to a decline in business investment, driven by persistently high cost inflation and growing concerns over consumer spending. The ongoing conflict in the Middle East and soaring energy costs are taking a heavy toll on households and businesses, exacerbating the UK's low-growth story. The CBI predicts that unemployment will then reduce slightly to around 5.3% for 2027.
Growth Projections Scaled Back
The organisation has also scaled back its growth projections for the coming two years. Forecasts predict that UK gross domestic product (GDP) will slow from 1.4% growth last year to 1.1% in 2026 and then 0.9% in 2027. Previously, the CBI had pointed towards growth of 1.3% this year and 1.5% in 2027. The gloomy outlook is largely attributed to the ramifications of the Middle East conflict, which has pushed inflation beyond expectations and knocked confidence amongst businesses and consumers alike. Elevated global energy prices, disrupted supply chains, and heightened uncertainty are all expected to act as a drag on growth.
Inflation Expected to Rise
The forecasts also suggest that inflation is set to rise towards 4% by the end of this year, as elevated energy costs impact both businesses and households. UK consumer prices index (CPI) inflation stood at 2.8% in April but is anticipated to gather pace in the months ahead. The CBI said it expects the Bank of England to hold interest rates at their current level of 3.75% for the remainder of this year.
Expert Commentary
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 stark predictions paint a bleak picture of the nation's economic prospects, with Chancellor Rachel Reeves presiding over a UK economy with lower growth and rising unemployment. The combination of global shocks and domestic challenges continues to weigh heavily on the UK's economic outlook.
