Bank of America Securities has trimmed its forecast for UK economic growth in 2027 to 1.2%, citing elevated energy prices and uncertainty ahead of the government’s Autumn Budget.
The bank raised its 2026 growth projection by 10 basis points to 1.2%, reflecting stronger-than-expected activity in the first half of the year. For 2028, the outlook remains unchanged at 1.5%. The downgrade for 2027 follows an adjustment driven by higher oil and gas prices under a post-peace deal scenario.
Inflation projections were also revised upward. Headline inflation for the fourth quarter of 2026 is now seen at 3.4%, up 20 basis points, while the 2027 estimate was lifted by 30 basis points to 2.6%. Peak headline inflation is expected to reach 3.5% in November 2026, remaining above 3% until the second quarter of 2027. Core inflation forecasts were adjusted modestly to 2.8% for 2026 and 2.3% for 2027, with both measures for 2028 left unchanged at 2.1%.
Bank of England rate expectations were maintained, with the benchmark rate projected to hold steady through 2026 before a single 25-basis-point reduction to 3.5% in November 2027. The bank described the rate outlook as a narrow-margin decision, noting a very low probability of a hike in September but leaving options open for November, December, and February.
The labour market showed signs of softening, with the unemployment rate at 4.9%, alongside declines in payrolls and job vacancies. The rate is forecast to peak near 5.2% by mid-2027.
BofA anticipates slower growth in the coming months due to energy price pressures and Budget-related uncertainty. Risks to the forecasts remain tilted to the upside, supported by resilient PMI data in August, particularly in the services sector. The bank does not expect a broad fiscal easing package in the Autumn Budget, given fiscal rules, though limited flexibility may be used to increase investment borrowing within debt constraints.
