UK Economic Forecast Downgraded for 2026, Unemployment to Peak This Year
The UK’s economic growth forecast for 2026 has been revised downwards, while unemployment is expected to peak later this year before declining, according to Chancellor Rachel Reeves’ spring statement to the House of Commons on Tuesday, March 3, 2026.
Revised Economic Growth Forecasts
The Office for Budget Responsibility (OBR) now forecasts gross domestic product (GDP) growth of 1.1% in 2026, a decrease from the 1.4% predicted in November The Guardian. Although, forecasts for 2027 and 2028 have been upgraded to 1.6%, from 1.5% previously The Independent. Forecasts for 2029 and 2030 remain unchanged at 1.5%.
| Year | GDP Growth Forecast |
|---|---|
| 2026 | 1.1% |
| 2027 | 1.6% |
| 2028 | 1.6% |
| 2029 | 1.5% |
| 2030 | 1.5% |
Unemployment Rate
Unemployment is projected to peak later in 2026, before falling from 2027 to 2030, reaching 4.1% BBC News. This is lower than the rate in 2024. The OBR initially expected unemployment to peak at 4.9% in 2026, but has now revised this upwards to 5.3% The Guardian.
Government Borrowing and Fiscal Headroom
The OBR forecasts government borrowing will be £18 billion lower than its November prediction. Reeves stated that the UK is set to borrow less than the G7 average The Independent. Public sector net borrowing is forecast as follows:
| Year | Public Sector Net Borrowing (%) |
|---|---|
| 2026 | 4.3% |
| 2027 | 3.6% |
| 2028 | 2.9% |
| 2029 | 2.5% |
| 2030 | 1.8% |
Net Migration Forecasts
The forecast for net migration has been reduced from 295,000 to 235,000 BBC News. This reduction in net migration could lead to lower GDP due to fewer tax receipts and reduced spending.
Middle East Conflict
The OBR has warned that the conflict in the Middle East could have “very significant impacts” on the global and UK economies, particularly in energy markets The Independent. However, the current forecasts do not yet account for the potential impact of this conflict.