UK growth forecast downgraded as business investment slumps

The British Chambers of Commerce has warned that the United Kingdom economy is entering a period of stagnation, with a significant decline in business investment expected to suppress growth potential for the remainder of the year. The industry body described the current economic trajectory as being stuck in the slow lane, indicating that recent momentum will not be sustained. This assessment comes as the BCC marginally upgraded its overall growth forecast for 2026 to one per cent, yet cautioned that the contribution from investment will diminish sharply.

According to the BCC, a contraction in private sector investment combined with weak construction data will prevent any further acceleration in economic activity. Economists associated with the group predict that business investment will fall by 0.2 per cent this year, before recovering to a modest 0.4 per cent increase next year. This outlook is notably more pessimistic than previous estimates, which suggested a potential contraction of up to 2.2 per cent. The broader jobs market is also facing headwinds, with the unemployment rate projected to reach five per cent by the end of 2026. Inflation is expected to peak at 3.6 per cent, a figure that exceeds the projections previously made by the Bank of England.

Vicky Pryce, chair of the BCC economic advisory council, stated that the growth rates recorded in the first two quarters of the year will soon be a thing of the past. She warned that resilience alone is insufficient to turbocharge growth or provide businesses with the necessary tools to power the economy. The BCC forecasts that the economy will actually contract in the third quarter, followed by a marginal expansion of just 0.1 per cent between October and December. These predictions are more cautious than the average forecasts from City firms and independent organisations surveyed by the Treasury, which anticipate growth of 0.2 per cent in the third quarter and 0.1 per cent in the fourth.

The divergence in views extends to other economic indicators. Several major institutions, including EY and Natwest, believe business investment will decline by larger margins this year. Conversely, all economists in the Treasury’s monitor of independent forecasts predict that government consumption will rise by approximately two per cent over 2026. James Smith of ING has noted that the current pattern of early-year growth spurts followed by slowdowns has become a recurring theme since 2022. These economic judgments are set to gain further significance ahead of the upcoming Budget, as the Office for Budget Responsibility prepares to revise its five-year forecasts. This process will directly impact the fiscal headroom available to Chancellor John Healey. The Treasury has been approached for comment on the latest projections.