UK unemployment forecast to hit 5.4% in 2027
Key Points
- BCC forecasts UK unemployment at 5.0% by end of 2026, peaking at 5.4% in 2027
- Youth unemployment expected to reach a high of 17.6% next year
- GDP growth forecast at 1.0% in 2026 and 2027, rising to 1.3% in 2028
- Inflation to peak at 3.6% in Q4 2026 with base rate held at 3.75% for two years
- Just 17% of firms say they are increasing investment, the lowest since the pandemic
UK unemployment will reach 5% by the end of 2026 and peak at 5.4% in 2027, according to the latest British Chambers of Commerce (BCC) Economic Forecast published on Tuesday (1 September).
The 2026 figure is a downgrade from the 5.2% the BCC predicted in its June forecast, and the 2027 peak is lower than the 5.5% it expected three months ago.
The BCC said the labour market had proved more resilient than expected in recent months, but that firms facing squeezed margins would continue to hold back on hiring.
Youth unemployment is forecast to end 2026 at 16.6%, down from the 16.9% predicted in June, before rising to a high of 17.6% in 2027.
Growth in average earnings is expected to hold steady at 3.75% in both 2026 and 2027, which is below the 3.6% inflation peak the BCC forecasts for the final quarter of this year.
Wider economy stuck at 1% growth
The forecast puts UK GDP growth at 1.0% in 2026, a marginal upgrade from the 0.9% predicted in June, with growth staying at 1.0% in 2027 before picking up to 1.3% in 2028.
Business investment is expected to fall by 0.2% this year before recovering to growth of 0.4% in 2027 and 1.2% in 2028.
The BCC said the improvement on its June estimate of a 2.2% fall reflected stronger Office for National Statistics data for the second quarter, driven by larger firms rather than small businesses.
Its surveys show SME sentiment has fallen to its lowest level since the pandemic, with just 17% of firms saying they are increasing investment.
Inflation is forecast to peak at 3.6% in the final quarter of 2026, down from the 3.8% predicted in June, before easing to 2.3% by the end of 2027.
The BCC expects the Bank of England base rate to stay at 3.75% for the next two years, but said a combination of food inflation, high energy prices and the Middle East conflict could force a rate rise.
Exports are forecast to grow by 0.4% in 2026 and 1.3% in 2027, with the Middle East conflict and US tariffs holding back trade.
“Our latest forecast paints an uncertain outlook for the UK economy,” said David Bharier, deputy director of economics and insights at the BCC. “Businesses have absorbed another major geopolitical shock and shown real resilience.”
“But growth remains subdued, and rests on consumption, not investment,” he added.
Bharier said the BCC’s modelling showed the domestic, policy-driven cost base for a typical SME had risen by more than 70% since 2016, before Brexit trade friction and global shocks were factored in.
“AI and exports could hand the UK a major double gain, but the general cost burden holding back SMEs also needs to be addressed,” he said.
“A mix of stubborn inflation, struggling exports and elevated unemployment are creating an ever-challenging environment for businesses, particularly SMEs,” said Vicky Pryce, chair of the BCC Economic Advisory Council.
