UK Economy Expected to Shrink by £35 Billion by 2027, Warns NIESR

Overview of Economic Forecast#

The National Institute of Economic and Social Research (NIESR) has announced that the UK economy is projected to be approximately £35 billion smaller in 2026 and 2027 than previously expected. This forecast comes even under a best-case scenario where conflicts in the Middle East are resolved quickly.

Revised Growth Predictions#

NIESR has adjusted its Gross Domestic Product (GDP) growth estimates to 0.9% for 2026 and 1.0% for 2027. These figures represent a decrease of 0.5 and 0.3 percentage points, respectively, from earlier predictions made in February. While the forecast suggests that the UK will avoid a recession, it will do so by a narrow margin.

Impact of Energy Prices#

The downward revision is largely due to a new energy crisis triggered by ongoing conflicts in the Middle East. The UK is particularly vulnerable because of its significant dependence on imported gas for energy, which directly affects both gas and electricity prices. As a result, consumer price index (CPI) inflation is expected to peak at 4.1% in early 2027 before returning to the target of 2% in 2028.

Unemployment and Public Finances#

The unemployment rate is anticipated to rise to 5.5% by the end of 2026, up from 4.9% earlier this year. Wage growth is also expected to slow down, decreasing from 3.8% to 3.3% in 2027. Additionally, the ongoing energy crisis is likely to strain the UK’s public finances, leading to higher debt-servicing costs and weaker economic growth. The UK has not achieved a primary surplus since 2001, indicating ongoing fiscal challenges.