Forecasters broadly agree: the UK will keep growing, but slowly, with inflation rising again and interest rates likely to go up before they come down.
Here’s what that means for owner-managed businesses, landlords, care providers, charities and professional practices — and what to do before April 2027.
Every autumn the forecasters publish their view of the year ahead. This year they broadly agree on the headline — the UK will keep growing, but slowly — and on the main risks: energy prices, interest rates and the Budget on 28 October.
This article brings together the latest forecasts and official data, and explains what they mean for businesses.
What are the forecasters saying about growth?
Alongside the Budget, the Office for Budget Responsibility forecast UK growth of 1.2% in 2026, 1.0% in 2027 and 1.6% in 2028.
That is a sharp downgrade for 2027, from the 1.6% it forecast in March.
Most forecasts put UK growth at between about 1% and 1.3% in 2026. The average of independent forecasts compiled by HM Treasury puts 2027 growth at around 1.2%.
The first half of 2026 was stronger than expected, but growth is expected to slow over the winter as higher energy bills, higher borrowing costs and weaker household spending power take effect.
The shape of growth matters too. The summer pick-up was driven by services, while construction and manufacturing output fell. Sectors that make the most use of technology and AI — professional services, IT and administrative services — have grown fastest.
In plain terms: a growing economy, but not one that will lift every business with it.
Are inflation and interest rates going up again?
Probably, for a while. Inflation rose to 3.5% in September 2026, driven mainly by energy costs following the conflict in the Middle East.
The Bank of England expects it to rise further, to a little over 4% in early 2027, before falling back as energy prices settle.
The Office for Budget Responsibility now expects inflation to average 3.1% in 2026 and 3.4% in 2027 — well above its earlier forecasts of 2.3% and 2%.
Bank Rate is currently 3.75%. Markets expect a rise to 4% at the Bank of England’s next decision on 5 November. Most forecasters then expect rates to start falling again during 2027, as the effect of higher energy prices fades.
For borrowers, the next 6 to 9 months look like the peak of this cycle rather than the start of a long climb.
How do businesses themselves feel?
More confident than the headlines suggest — but cautious with cash.
Recent business surveys show confidence improving after a difficult spring, with many firms planning to invest over the next year, particularly in staff training, equipment and digital tools.
Larger businesses expect technology and AI to improve productivity, and expect their spending on it to rise.
But there is a clear gap between intent and action. Many smaller businesses still find borrowing costs too high to justify new investment, and business tax remains one of their main concerns.
Across businesses of all sizes, cost control and cash discipline are still the top priorities.
What about jobs and wages?
The labour market is cooling. The British Chambers of Commerce forecasts unemployment rising to around 5.4% in 2027, with average earnings growth holding at about 3.75%.
For employers, that means recruitment may get easier, but employment costs are still rising.
Key changes include:
- Statutory sick pay has applied from day one since April 2026.
- The unfair dismissal qualifying period falls in January 2027.
- The National Living Wage and National Minimum Wage rise by 3.9% from April 2027.
Employers should factor these changes into workforce planning, recruitment budgets and future payroll costs.
What did the Budget change?
The Budget on 28 October left the headline rates of income tax, National Insurance, VAT and corporation tax unchanged.
The Chancellor kept £15 billion of headroom against his fiscal rules — a thin cushion, so this is unlikely to be the last word on tax in this Parliament.
The main changes for businesses take effect from April 2027:
- The Business Asset Disposal Relief lifetime limit halves from £1 million to £500,000.
- Tax on property and savings income rises to 24%, 44% and 49%.
- A new Founders’ Relief offers a 10% rate on up to £10 million of gains for qualifying founders.
- The main-rate first-year allowance rises to 50% from 1 January 2027.
- Payrolling of company cars, vans, fuel and medical benefits becomes mandatory.
These changes could have a significant impact on business owners, landlords, investors and employers. Reviewing your tax position ahead of April 2027 is important.
What should you do before April 2027?
None of this calls for drastic action. It calls for checking your assumptions while you still have room to move — ideally before the tax year starts.
There are five practical steps worth taking now:
- Re-run your cash-flow forecast. Model your finances at a higher Bank Rate. Assume 4% and ask whether you would still cover your commitments if revenue came in 10% below plan.
- Revisit your pricing. If inflation is 3.5% and your prices haven’t moved, you’ve taken a real-terms cut. Costs that aren’t recovered show up in margin within a quarter.
- Check your borrowing. Know what proportion of your debt is variable, when fixed terms expire, and what a renewal would cost at today’s rates rather than the rates you signed on.
- Time your capital spending. If a purchase is going to happen anyway, financing it before a rate rise is cheaper than financing it after one.
- Check the Budget changes that affect you. Pay particular attention if you’re planning a business sale, own rental property or provide benefits to staff.
How we can help
Send us your figures and we’ll tell you what this outlook means in cash terms for your business — where the margin is going, what a rate rise does to your commitments, and which decisions are worth making before April 2027 rather than after.
A short conversation now is cheaper than a correction later.
Frequently asked questions
Is the UK in recession?
No. Most forecasts put UK growth at between about 1% and 1.3% in 2026, with the average of independent forecasts compiled by HM Treasury putting 2027 growth at around 1.2%.
The pressure on businesses comes from costs running ahead of that growth.
Will interest rates go up or down?
Rates are more likely to rise before they fall. Bank Rate is currently 3.75%, with markets expecting a move to 4% on 5 November.
Most forecasters then expect rates to start falling again during 2027. If you’re relying on cheaper borrowing, test your plans against higher rates first.
I’m a landlord, care provider or charity — does this apply to me?
Yes, mostly through costs and financing.
Rising inflation pushes up maintenance, energy and payroll at the same time as rents, fees and funded rates are hardest to lift.
The squeeze shows up as a thinner margin rather than a fall in activity, which is why it’s easy to miss until it’s in the numbers.
What did Budget 2026 change for businesses?
Headline tax rates were unchanged, but from April 2027 the Business Asset Disposal Relief limit halves to £500,000, tax on property and savings income rises to 24%, 44% and 49%, a new 10% Founders’ Relief is introduced, and the first-year allowance for equipment rises to 50% from January 2027.
Business owners should review the changes and consider their impact before April 2027.
Sources
Sources: Office for Budget Responsibility, Economic and Fiscal Outlook, October 2026; HM Treasury, Budget 2026, 28 October 2026; HM Treasury compilation of independent forecasts for UK growth; ONS Consumer Price Inflation, September 2026; Bank of England inflation outlook and Bank Rate; British Chambers of Commerce labour market forecasts.
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