NIESR cuts UK 2026 GDP forecast to 0.9% from 1.4%, sees inflation peaking above 4% in 2027 and warns of recession risk if the Iran war worsens.
NIESR cuts UK 2026 GDP forecast to 0.9% from 1.4%, sees inflation peaking above 4% in 2027 and warns of recession risk if the Iran war worsens. BoE seen hiking once to 4% in July.
Summary: NIESR, the National Institute of Economic and Social Research, cut its UK GDP growth forecast to 0.9% for 2026 and 1.0% for 2027, down sharply from February projections of 1.4% and 1.3% Inflation is forecast to accelerate to 4.1% at the start of 2027 from 3.3% currently, driven by surging oil and gas prices, and is not expected to return to the 2% target until 2028 Unemployment is projected to peak at 5.5% in Q4 2026, slightly above NIESR’s February forecast, with wage growth slowing to 3.3% in 2027 NIESR expects the BoE to raise rates once in July 2026, taking Bank Rate to 4% from 3.75% In an adverse scenario involving a prolonged conflict and higher oil prices, NIESR warns of a high likelihood of recession in H2 2026 and says the BoE could need to hike by 150bp to 5.25% NIESR director David Aikman said the conflict has exposed the UK’s continued vulnerability to global energy shocks Chancellor Rachel Reeves is warned she will need to run primary budget surpluses, last achieved in 2001, to address Britain’s deteriorating debt trajectory The BoE is due to publish updated forecasts on Thursday alongside an expected decision to hold rates The National Institute of Economic and Social Research, Britain’s oldest and most respected independent economic think tank, has sharply downgraded its outlook for the UK economy, warning that the Iran war is driving inflation well above the Bank of England’s target and will keep it there until 2028 while simultaneously choking off growth. NIESR, founded in 1938 and widely regarded as one of the most authoritative voices on the British economy, cut its GDP growth forecast for 2026 to just 0.9%, down from 1.4% projected as recently as February. Its 2027 forecast was trimmed to 1.0% from 1.3%.
The institute attributed the deterioration directly to…