The UK economy is forecast to grow by 1.3 per cent in 2026, with a further 1.4 per cent growth estimated for 2027, according to KPMG's latest economic outlook. This growth follows household spending supported by warmer weather and continued business investment in technology.
However, rising energy bills and higher borrowing costs are expected to weigh on economic activity in the second half of 2026. Household spending is anticipated to slow as consumers face increased energy costs and subdued wage growth.
Higher wholesale gas prices are projected to impact household energy bills this autumn, potentially increasing inflation. The Ofgem energy price cap is forecast to rise by roughly four per cent in October, with the government's VAT reduction on household energy bills expected to only partially offset this increase.
The Bank of England is also anticipated to raise interest rates in the coming months, with the base rate expected to increase to 4 per cent at the November meeting, following the Monetary Policy Committee's decision to hold rates at 3.75 per cent last week.
KPMG analysis also suggests that increased capital spending in England's seven most underfunded regions, including the Midlands and the North East, could help close the productivity gap and support stronger long-term growth. An estimated £47bn of additional investment in these regions could bring them to the current national average level of capital, potentially yielding £25bn in GDP over five years.