UK economic growth looks set to stall and unemployment is forecast to worsen as the ongoing conflict in the Middle East and soaring energy costs take their toll on households and businesses, according to stark new predictions.
Influential business group the Confederation of British Industry (CBI) has warned that around 200,000 more Britons are on course to lose their jobs, painting a bleak picture of the nation’s economic prospects.
Its latest economic forecast predicted that UK unemployment will rise to 5.5% this year, which would represent around two million people.
The unemployment rate was most recently reported at 5%, or around 1.8 million people, by the Office for National Statistics.
CBI economists attributed the weakening jobs market to a decline in business investment, driven by persistently high cost inflation and growing concerns over consumer spending.
It predicted that unemployment will then reduce to around 5.3% for 2027.
This came as the organisation also scaled back its growth projections for the coming two years.
Forecasts predicted that UK gross domestic product (GDP) will slow from 1.4% growth last year to 1.1% in 2026 and then 0.9% in 2027.
Previously, it had pointed towards growth of 1.3% this year and 1.5% in 2027.
The gloomy outlook is largely attributed to the ramifications of the Middle East conflict, which has pushed inflation beyond expectations and knocked confidence amongst businesses and consumers alike. Elevated global energy prices, disrupted supply chains, and heightened uncertainty are all expected to act as a drag on growth.
Louise Hellem, chief economist at the CBI, said: “What’s happening around the world is compounding the UK’s low-growth story.
“We saw weak momentum throughout 2025, but if it weren’t for the latest global shocks, we could be having a much more positive conversation about the economy today.
“Last year it was tariffs and this year it’s the conflict in the Middle East.”
The forecasts also suggested that inflation is set to rise “towards 4%” by the end of this year, as elevated energy costs impact both businesses and households.
UK consumer prices index (CPI) inflation stood at 2.8% in April but is anticipated to gather pace in the months ahead.
The CBI said it expects the Bank of England to hold interest rates at their current level of 3.75% for the remainder of this year.
