The Confederation of British Industry has cut its UK GDP growth forecast to 1.1 per cent for 2026, heaping further pressure on Chancellor Rachel Reeves.
The revised figure marks a significant drop from the 1.4 per cent recorded last year and falls below the previous consensus forecast of 1.3 per cent.
The outlook for 2027 is even more troubling, with the CBI slashing its forecast to just 0.9 per cent, down sharply from an earlier projection of 1.5 per cent.
Louise Hellem, chief economist at the CBI, pointed to a combination of domestic weakness and international turbulence as driving the gloomy revision.
“What’s happening around the world is compounding the UK’s low-growth story,” Hellem said, framing the downgrade as the product of multiple overlapping crises.
“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,” she added.
Hellem also identified the shifting nature of the external threats facing the UK economy, noting: “Last year it was tariffs and this year it’s the conflict in the Middle East.”
The US-Iran war passed its 100th day on Sunday, with no formal peace agreement in sight despite Donald Trump claiming a deal was “very close.”
The ongoing conflict has kept global oil prices elevated, feeding inflationary pressure and weighing heavily on economies around the world.
A key flashpoint in the crisis has been the closure of the Strait of Hormuz, the strategic waterway responsible for approximately one fifth of the world’s oil supply.
Trump said on Tuesday that negotiations are progressing, describing the situation as being in “the final throes of what will be a very, very good deal that will not allow in any way, shape, or form nuclear weapons, etcetera.”
He further indicated that the waterway could reopen imminently, saying: “And the Strait will open up right away. It will open up immediately upon signing, which could be in two or three days.”
A reopening of the strait would offer meaningful relief to global supply chains and could ease some of the inflationary pressure that has battered businesses and consumers alike.
For Reeves, however, the damage to near-term growth projections arrives at a difficult moment, as the government faces persistent scrutiny over its economic management and fiscal strategy.
The FTSE 100 traded broadly flat on Tuesday morning as markets digested the CBI figures alongside Trump’s latest comments on the Iran negotiations.