Business · Economy · 4 hrs ago
UK inflation forecast to rise as growth slows in 2027
The UK’s budget watchdog expects inflation to climb as higher energy costs hit households and businesses.
The Office for Budget Responsibility said inflation could peak at around 3.75% early next year, while its forecast for this year also rose.
It cut its 2027 growth forecast to 1%, down from 1.6%, after upgrading its estimate for this year to 1.2%.
The watchdog said inflation should gradually ease, but it expects the UK to reach the 2% target only in 2028.
Healey announced support for energy bills, including removing the gas standing charge and measures to reduce electricity bills.
The sources differ on some figures for inflation, debt interest costs and the budget’s remaining fiscal headroom.
Higher borrowing costs are narrowing the government’s financial buffer, while forecasts show public debt rising as a share of the economy before easing later in the forecast period.
The forecasts point to continued pressure on living costs, with growth expected to recover after 2027.
The Office for Budget Responsibility cut its UK growth forecast for 2027 from 1.6% to 1%.
The OBR attributed the weaker outlook to higher energy costs linked to the war in the Middle East.
It expects inflation to rise sharply, with forecasts for 2027 varying between 3.4% and 3.5% in the reports.
Chancellor John Healey announced measures to help households and businesses with energy costs in his first Budget.
The OBR also forecast higher borrowing and reduced fiscal headroom for the government.
- Who
- The Office for Budget Responsibility issued the forecasts; Chancellor John Healey presented the Budget.
- What
- The OBR cut its 2027 UK growth forecast to 1% and warned of higher inflation and pressure on public finances.
- When
- The forecasts were published on 28 October 2026.
- Where
- The forecasts concern the UK.
- Why
- The OBR linked the weaker outlook to higher energy costs arising from the war in the Middle East.
This story does not have two clearly opposing sides.
The OBR published its forecasts as John Healey presented his first Budget.
UK growth is forecast to slow to 1%, down from the OBR’s previous 1.6% estimate.
The OBR expects inflation to reach the government and Bank of England’s 2% target.
- 2027 growth forecast
- 1%, down from 1.6%
- 2026 growth forecast
- 1.2%, up from 1.1%
- Inflation forecast for 2027
- 3.4% (Independent); 3.5% this year (Guardian)
- Fiscal headroom
- £15bn
- Energy support payments
- £100 for 20 million households
5 sources
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What people are saying
There are real challenges ahead but Britain has beaten the forecasts this year, and with the action I am taking today I believe Britain can beat the forecasts again
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