UK economic growth is expected to remain stuck at about 1 per cent this year and next as high costs, weak business investment and sluggish exports weigh on the recovery, according to the British Chambers of Commerce.

The business group raised its forecast for GDP growth in 2026 from 0.9 per cent to 1 per cent after the economy proved more resilient than expected during the first half of the year. It expects growth to remain at 1 per cent in 2027 before accelerating to 1.3 per cent in 2028.

Official figures showed GDP expanded 0.4 per cent in the second quarter, following 0.6 per cent growth in the first three months of the year. Services grew 0.5 per cent during the latest quarter, while construction increased 0.3 per cent and production was flat.

However, the BCC expects business investment to contract 0.2 per cent this year as companies contend with domestic cost pressures and global uncertainty. Investment is forecast to grow just 0.4 per cent in 2027 and 1.2 per cent in 2028.

Exports are also expected to increase by only 0.4 per cent this year, with the BCC pointing to disruption from the Middle East conflict and US tariffs. Growth in exports is forecast to improve to 1.3 per cent next year.

Inflation remains another constraint. The BCC expects consumer price inflation to peak at 3.6 per cent in the final quarter of 2026 before declining to 2.3 per cent by the end of next year.

Official data showed CPI inflation had already risen from 2.6 per cent in June to 2.9 per cent in July, driven partly by higher housing and household costs. The Bank of England held its benchmark rate at 3.75 per cent in July and warned that higher energy prices could generate further inflationary pressure.

The BCC also expects unemployment to reach 5 per cent by the end of this year and peak at 5.4 per cent in 2027, while youth unemployment is forecast to rise to 17.6 per cent.

David Bharier, deputy director of economics and insights at the BCC, said the outlook remained uncertain despite businesses demonstrating resilience.

“Growth remains subdued, and rests on consumption, not investment,” he said. “Net trade is also a drag in every single year of the forecast.”

Bharier urged the government to use the next Budget to encourage investment, exports and hiring, warning that rising business costs were holding back smaller companies.