UK Economy Shows Unexpected Resilience, But Inflation Remains Above Target

The UK's economy has proven more resilient than expected after the energy price shock caused by the Iran war, but inflation is still projected to remain above the Bank of England's target until 2029. The National Institute of Economic and Social Research (NIESR) has revised its growth forecast upwards, predicting that gross domestic product will expand at an annual rate of 1.1% in 2026.

Inflation is expected to average 3.1% in 2026, peaking at 3.8% in February 2027 before returning to target in 2029. The jobless rate is projected to peak at 5.3% in the first quarter of 2027.

NIESR's deputy director for macroeconomics, Stephen Millard, warned that inflation will still rise and the new Chancellor will need to make difficult decisions, including funding Prime Minister Andy Burnham's commitments through higher taxation or spending cuts.