Ongoing tensions in the Middle East have led the CBI to revise down its expectations for UK growth and warn that higher energy costs will weigh on households and businesses through next year.
The employers’ group now forecasts UK GDP growth of 1.1% in 2026 and 0.9% in 2027, down from its previous projections of 1.3% and 1.5%.
The downbeat outlook is published as Scotland’s Economy Secretary Stephen Flynn prepares to tell the Scottish Parliament today that the Holyrood government will “relentlessly” focus on economic growth that people feel in the form of higher wages, stronger businesses and lower cost of living challenges.
His promises will be made against the backdrop of the Iran conflict which continues to pile pressure on energy prices and disrupt supply chains.
Despite strong GDP growth in the first quarter of 2026, CBI business surveys report that underlying momentum remains subdued across much of the private sector as global shocks compound domestic headwinds.
The CBI forecasts inflation to increase towards 4% by the end of 2026, while business investment will contract and consumer spending will slow as real incomes stagnate.
The CBI does not expect bank rate to change from 3.75%, despite the likelihood that the European Central Bank will raise interest rates this week. UK unemployment is forecast to rise to 5.5%.
Louise Hellem, chief economist at the CBI, said: “What’s happening around the world is compounding the UK’s low-growth story. We saw weak momentum throughout 2025, but if it weren’t for the latest global shocks, we could be having a much more positive conversation about the economy today.
“Last year it was tariffs and this year it’s the conflict in the Middle East. The reality is that a world of elevated uncertainty and volatility is no longer the exception, it’s the norm – the backdrop against which businesses must operate.
“That makes getting the domestic fundamentals right more important than ever. You cannot build growth by continually increasing the tax burden on business, and you cannot solve the cost-of-living challenge without tackling the cost of doing business.”
Mr Flynn will attempt a positive message when he leads a debate on economic growth, setting out priority areas of Scottish Government focus “to help create a more productive, dynamic and prosperous economy.”
He will tell MSPs: “Growing Scotland’s economy is a central mission of this Government and Scotland starts from a position of real strength.
“But our focus must be on growth that is felt – in higher wages, stronger and more resilient businesses and in people’s ability to afford the essentials.
“We are determined to build a more productive, dynamic and prosperous Scotland where growth is not measured only in statistics or announcements, but felt in people’s lives—in the jobs they can get, the homes they can afford, the businesses they can build and the confidence they have in their future. That is the prize before us.
“But there can be no doubt that poor decisions taken at Westminster such as Brexit, the hike to employers national insurance contributions and the Energy Profits Levy choking investment in Aberdeen and the North East are harming our economy severely.
“So while this government will act decisively on our responsibilities, we need the UK Government to recognise Scotland’s economic interests rather than acting against them or it will be clearer than ever that Scotland’s economy needs the fresh start of independence.”
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