More than 200,000 Britons are on track to lose their jobs this year, pushing the unemployment total to around two million, according to stark new forecasts from the Confederation of British Industry (CBI). The influential business group warned that economic growth is set to falter, inflation is likely to climb towards 4%, and the labour market will weaken as global shocks – particularly the conflict in the Middle East – combine with domestic pressures on businesses.
The CBI’s latest economic forecast predicts UK gross domestic product (GDP) growth will slow from 1.4% last year to 1.1% in 2026 and then 0.9% in 2027 – a significant downgrade from earlier projections of 1.3% and 1.5% respectively. The unemployment rate is expected to rise from 5% (around 1.8 million people) to 5.5% this year, adding roughly 200,000 to the jobless figures. The CBI expects the Bank of England to keep interest rates at their current level of 3.75% for the rest of 2026, as inflation is forecast to increase “towards 4%” by the end of the year – up from 2.8% recorded in April.
“CBI warns UK growth slowing, unemployment heading to two million, inflation rising.”
The gloomy outlook stems from a combination of factors. Most immediately, the conflict in the Middle East has pushed up global energy prices and disrupted supply chains, raising costs for firms and households. Louise Hellem, the CBI’s chief economist, said: “What’s happening around the world is compounding the UK’s low-growth story. Last year it was tariffs and this year it’s the conflict in the Middle East.” At the same time, higher inflation and weak consumer spending have prompted businesses to cut back on investment. The CBI also pointed to domestic headwinds: the boss of the CBI, Rain Newton-Smith, warned that an extra £345 billion has been added to firms’ tax bills over the past two years, and that high national insurance and minimum wage hikes since Labour came to power have left firms at a “tipping point”. “You cannot fix the cost of living without fixing the cost of doing business,” she said.
For UK readers, these figures translate into real-world consequences. A rise in unemployment means more people will struggle to find work, while those in jobs may face weaker pay growth as firms try to control costs. Higher inflation, especially on energy bills, will squeeze household budgets further. With the Bank of England holding interest rates at 3.75%, mortgage rates are likely to stay elevated, adding to the cost of borrowing. Business investment – already low – could fall further, affecting productivity and future job creation. The combination of slowing growth and rising unemployment is a classic stagflationary pattern, making it harder for the government to balance its books or deliver tax cuts.
Q: What is the CBI? The Confederation of British Industry (CBI) is an influential lobby group that represents around 190,000 UK businesses. Its forecasts are closely watched by policymakers and the media because they offer a snapshot of how companies are feeling and what they expect for the economy. The CBI’s predictions are based on surveys of its members and analysis of economic data.
Q: Why is unemployment rising when the economy is still growing? The economy is still growing, but very slowly – too slowly to keep up with the growth in the working-age population or to absorb people who lose jobs in struggling sectors. The CBI says the weakening labour market is linked to reduced business investment, as companies face higher costs (from energy, wages, and taxes) and uncertain demand. When firms invest less, they hire fewer people and may cut existing roles.
Q: Will interest rates go up again because of inflation? The CBI expects the Bank of England to keep interest rates at 3.75% for the rest of this year. While inflation is rising towards 4%, the central bank is likely to weigh that against the risk of further slowing growth and rising unemployment. Higher rates would make borrowing more expensive, potentially tipping the economy into recession. So the Bank may hold steady for now, even if inflation stays above its 2% target.
Looking ahead, the CBI forecasts that unemployment will gradually decline to around 5.3% by 2027, but much depends on how global events unfold. If the Middle East conflict escalates or energy prices spike further, growth could weaken even more. The Bank of England’s next decision on interest rates will be a key marker – for now, they appear to be on hold. The government, meanwhile, faces pressure to ease the tax burden on businesses and find ways to boost investment without adding to inflation. The coming months will test whether the UK can escape the low-growth trap.