UK Economy Shows Resilience but Inflation Lingers

According to projections from the National Institute of Economic and Social Research (NIESR), the UK economy is expected to grow at an annual rate of 1.1% in 2026, up from 0.9% in its previous forecast. This revised growth estimate comes despite a weaker growth outlook due to the energy price shock caused by the war.

NIESR's deputy director for macroeconomics, Stephen Millard, warned that even if peace is restored quickly, inflation will still rise and the new Chancellor will need to make difficult decisions. Inflation is projected to average 3.1% in 2026, peaking at 3.8% in February 2027.

The NIESR report also suggests that inflation is expected to return to target in 2029, a year later than previously forecast. The jobless rate is predicted to peak at 5.3% in the first quarter of 2027. The Bank of England (BoE) is predicted to keep interest rates on hold this year and in 2027, but NIESR sees a case for increasing benchmark borrowing costs to 4% from 3.75% if energy prices rise further.