UK economy forecast modest growth, inflation above target through 2029

UK economy NIESR forecast inflation 2029 GDP growth fiscal headroom

The National Institute of Economic and Social Research (NIESR) projects that the United Kingdom’s gross domestic product will expand at an annual rate of 1.1% in 2026, an upgrade from the 0.9% forecast made in April. The institute attributes the revised outlook to the resilience of the economy after the energy‑price shock triggered by the Iran war, but notes that the shock has also eroded about £24 billion of fiscal headroom.

Inflation is expected to average 3.1% in 2026, peak at 3.8% in February 2027 and remain above the Bank of England’s target until it finally returns to target level in 2029. The jobless rate is projected to rise to a peak of 5.3% in the first quarter of 2027. NIESR expects the Bank of England to keep interest rates on hold through 2027, though it sees a case for raising the benchmark rate to 4% from 3.75% if energy prices rise further. Prime Minister Andy Burnham’s defence and cost‑of‑living commitments would need to be funded by higher taxes or spending cuts.

Entities: Andy Burnham · Bank of England · National Institute of Economic and Social Research · Stephen Millard · United Kingdom

Claims

What the coverage asserts, and how well corroborated each claim is across sources.

[● 7 SOURCES] The energy‑price shock caused by the Iran war has eroded about £24 billion of UK fiscal headroom. (NIESR analysis)
[● 7 SOURCES] Inflation is expected to peak at 3.8% in February 2027 in the UK. (NIESR forecast)
[● 7 SOURCES] The National Institute of Economic and Social Research projects UK GDP will grow at an annual rate of 1.1% in 2026. (NIESR forecast)
[● 7 SOURCES] UK unemployment is projected to peak at 5.3% in the first quarter of 2027. (NIESR forecast)
[● 7 SOURCES] The Bank of England is expected to keep interest rates on hold through 2027, but NIESR sees a case for raising the benchmark rate to 4% from 3.75% if energy prices rise further. (NIESR forecast)
[● 7 SOURCES] UK inflation is expected to return to the Bank of England’s target by 2029. (NIESR forecast)
[● 7 SOURCES] Inflation is projected to average 3.1% in the UK in 2026. (NIESR forecast)
[● 7 SOURCES] The previous NIESR forecast in April projected GDP growth of 0.9% for the UK. (NIESR forecast)