Britain’s economy is forecast to grow by just 1.0% in 2027, according to the Office for Budget Responsibility (OBR), as higher energy prices, borrowing costs and weak household spending weigh on the outlook.
The independent watchdog’s October 2026 Economic and Fiscal Outlook, published alongside the Budget on 28 October, predicts that growth will slow from 1.2% in 2026 before recovering to 1.6% in 2028 and 1.8% in 2029.
Growth forecast reduced for 2027
The Treasury says the OBR has revised its 2027 growth projection down to 1.0%, citing the effects of higher energy prices on consumers and businesses and the drag from higher interest rates. Its forecast for 2026 growth has been revised up slightly, to 1.2%, compared with March.
The OBR forecasts GDP per person will grow by only 0.9% in 2027, while household consumption growth is projected to slow to 0.6%. These measures underline the difference between growth in the overall economy and improvements felt by individual households.
Living standards under pressure
The Budget documents state that real household disposable income per person is forecast to fall by 0.6% in the 2026–27 financial year, before averaging annual growth of 0.6% over the remainder of the forecast. This is a measure of income after taxes and benefits, adjusted for inflation.
The OBR’s calendar-year projections show real household disposable income per person falling by 0.8% in 2026 and growing by just 0.1% in 2027. The figures cover different periods and should not be treated as contradictory.
Inflation expected to peak at 3.8%
Inflation is expected to reach 3.8% in the first quarter of 2027, according to the OBR, before easing towards the Bank of England’s 2% target by the third quarter of 2028. The watchdog links the near-term increase to higher energy prices and associated production and transport costs.
The OBR forecasts annual Consumer Prices Index inflation of 3.4% for 2027 as a whole. The 3.8% figure is a projected quarterly peak, not the average rate for the year.
Unemployment forecast to rise
The OBR expects unemployment to reach 5.1% in the second quarter of 2027 before gradually falling, with the annual unemployment rate forecast at 5.1% for 2027. It expects employment to increase over the longer forecast period, from 34.4 million in 2026 to 35.4 million by 2031.
Government points to Budget support
The Government argues that measures announced in the Budget will help households cope with higher living costs. Its plans include energy-bill support and an extension of the fuel-duty freeze. The Treasury says the Budget measures are expected to lower inflation by 0.1 percentage points in 2027.
Those claims should be considered separately from the OBR’s broader economic forecast. The watchdog’s projections incorporate the announced policy measures but remain subject to uncertainty, particularly around energy prices, interest rates and international developments.
A difficult outlook despite later recovery
The latest figures suggest another period of subdued growth and limited gains in household purchasing power, although the OBR projects a recovery in GDP growth from 2028. Forecasts are estimates rather than guaranteed outcomes and will be revised as new economic data emerge.
The OBR’s Economic and Fiscal Outlook and the Treasury’s Budget 2026 document were published on 28 October 2026.
Sources
Office for Budget Responsibility — October 2026 Economic and Fiscal Outlook