UK economy stuck in ‘slow lane’ as business investment to slump
A slump in business investment will drag on the UK economy’s potential for growth over the rest of the year as industry chiefs warned that the country was stuck in the “slow lane”.
The British Chambers of Commerce has warned that the UK economy is set for a slowdown in momentum over the remaining two quarters of 2026.
A contraction in business investment and poor construction figures are set to prevent a further boost in growth.
While the industry group marginally upgraded its growth forecast for this year to one per cent in 2026, it said that investment would make a “diminishing contribution”.
Economists predicted business investment would contract 0.2 per cent this year before recovering to 0.4 per cent growth next year. The BCC previously said business investment would contract by as much as 2.2 per cent.
The outlook for the UK jobs market is bleak as the unemployment rate is expected to end 2026 at five per cent. Inflation is projected to peak at 3.6 per cent by the end of the year, which is above forecasts made by the bank of England.
Vicky Pryce, chair of the BCC economic advisory council said that growth of 0.6 per cent and 0.4 per cent in the first two quarters of the year would “soon be well into the rear view mirror as the UK economy continues in the slow lane”.
The BCC predicted that the UK economy would contract in the third quarter of the year and expand by just 0.1 per cent between October and December.
UK economy’s common pattern
“Resilience alone will not turbocharge growth and give businesses the tools they need to power the economy,” Pryce said.
The BCC’s forecasts for lower growth over the rest of the year are more pessimistic than those of a host of City firms and independent organisations, as surveyed each month by the Treasury.
The monitor of independent forecasts showed that, on average, economists believed growth in the third quarter would be 0.2 per cent and then 0.1 per cent in the fourth quarter.
Several organisations including EY and Natwest believed business investment would decline by larger amounts this year while all economists predicted that government consumption would increase by about two per cent over 2026.
ING’s James Smith has pointed out that the slowdown in growth predicted this year points to a common pattern that has occurred since 2022.
He said earlier this year that a growth spurt in the early part of the year “sounds too good to be true”.
Growth judgments are set to become more important in the lead-up to the Budget when the Office for Budget Responsibility will be tasked with revising its economic forecasts over the next five years, impacting the level of headroom available to Chancellor John Healey.
The Treasury has been approached for comment.