UK GDP expected to grow by 1.3% in 2026 — OilPrice
The UK economy could grow by 1.3% in 2026, but activity in the second half of the year will be constrained by higher energy bills and more expensive borrowing. This is according to a forecast by consulting firm KPMG cited by OilPrice. KPMG also expects UK GDP to grow by 1.4% in 2027.
Pressure on consumer spending
According to KPMG's assessment, household spending was supported by warmer weather at the beginning of the year, while businesses continued to invest in technology. At the same time, consumption is expected to slow in the second half of the year due to rising energy costs and slower wage growth.
Yael Selfin, KPMG's chief economist in the UK, said that household purchasing power is likely to come under increasing pressure. According to her, a long-term challenge is maintaining stronger growth as the contribution from labour-force growth declines.
Energy and rates
Higher wholesale gas prices are forecast to affect UK household bills in the autumn and intensify inflationary pressure. Ofgem's energy price cap is expected to rise by around 4% in October. The government's reduction of VAT on household energy bills is expected to offset this increase only partially.
More current news is available on the UA.News Telegram channel Telegram.
The Bank of England kept its base rate at 3.75% last week. At the same time, the article notes that the market expects it to be raised to 4% at the November meeting amid more expensive energy, a weaker labour market and subdued domestic inflation.
Investment in regions
KPMG also believes that additional capital investment in England's seven most underfunded regions, including the Midlands and the North East, could narrow the productivity gap. According to the firm's calculations, around £47 billion in additional investment would bring capital investment levels in these regions to the national average and add £25 billion to GDP over five years.
At the same time, the government has limited room to support the economy and the cost of living ahead of the autumn budget. According to the article, rising borrowing costs have reduced the £23.6 billion budget headroom by around £9 billion, while weaker growth and an expected revision of forecasts by the Office for Budget Responsibility could reduce it by a further £2 billion.
