Britain’s economic growth is expected to remain sluggish over the next two years as a sharp decline in business investment and persistent cost pressures weigh on recovery, the British Chambers of Commerce (BCC) said in its latest economic forecast.
The business group downgraded its outlook for the UK economy, projecting gross domestic product (GDP) growth of just 0.9% in 2026, followed by a marginal rise to 1.0% in 2027. Growth is expected to improve slightly to 1.3% in 2028, but the overall trajectory remains weak by historical standards.
A key concern highlighted in the report is a steep fall in business investment, which is forecast to contract by 2.2% in 2026. Investment is expected to remain largely stagnant in 2027 before showing signs of recovery in 2028. The decline reflects mounting uncertainty among firms, high borrowing costs, and ongoing economic volatility.
“The investment outlook is particularly worrying,” the BCC said, noting that many businesses are opting to delay expansion plans amid fragile confidence and unpredictable market conditions.
Instead of investing in growth, firms are increasingly focusing on maintaining liquidity and building inventories as a buffer against supply disruptions and demand fluctuations. This defensive approach underscores the cautious mood across the business community.
Inflation remains another major challenge. The BCC expects consumer price inflation to rise to 3.8% by the end of 2026, driven in part by elevated energy costs and global supply pressures. While inflation is projected to ease to 2.3% by late 2027, it is likely to remain above the Bank of England’s target for an extended period.
Geopolitical tensions, particularly in the Middle East, are adding to the economic strain. The conflict has contributed to higher energy prices and increased uncertainty in global markets, further dampening business confidence and complicating the UK’s recovery path.
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Trade performance is also expected to remain weak in the near term. UK exports are forecast to decline slightly in 2026 before returning to modest growth in subsequent years. The subdued outlook reflects soft global demand and ongoing trade frictions.
Sectoral performance across the economy is likely to be uneven. The services sector, which accounts for the bulk of UK output, is expected to provide limited support for growth, expanding by around 1.3%. However, construction activity is projected to contract, weighed down by high costs and reduced investment, while manufacturing faces a mixed outlook amid fluctuating demand and input prices.
The broader picture painted by the BCC is one of an economy stuck in a low-growth cycle, where businesses are prioritizing cost control and resilience over expansion. This shift in strategy is seen as a rational response to the current environment but risks prolonging the period of subdued economic activity.
The forecast adds to a growing body of evidence pointing to a fragile UK economic outlook. Business groups and economists have increasingly warned that without a meaningful rebound in investment and confidence, the country risks underperforming compared to its peers.
The BCC called for targeted policy measures to support business investment and boost confidence, including incentives for capital spending and greater clarity on long-term economic strategy. It also stressed the importance of addressing structural challenges such as skills shortages and productivity gaps.
While the UK is not expected to fall into recession, the outlook suggests that a robust recovery remains some distance away. Much will depend on the evolution of global conditions, particularly energy markets and geopolitical stability, as well as domestic policy responses.
For now, the message from the business community is clear: without stronger investment and improved confidence, the UK economy is likely to remain in a prolonged period of subdued growth.
