UK Economic Outlook Strained by Energy Costs and Fiscal Limits

While KPMG projects a 1.4 per cent expansion in 2027, the immediate outlook remains clouded. Wholesale gas prices, driven by ongoing conflict in Iran, are expected to push the Ofgem energy price cap up by approximately four per cent in October. This inflationary pressure forces the Bank of England to consider raising the base rate to 4 per cent at its November meeting, following last week’s decision to hold at 3.75 per cent.

Chancellor Rachel Reeves faces a narrowing fiscal margin as she prepares the Autumn Budget. Borrowing costs have already eroded the £23.6bn of headroom identified in the Spring Forecast by £9bn, with potential OBR downgrades threatening to shave off another £2bn. To counter this stagnation, KPMG suggests a targeted £47bn investment in underfunded regions like the Midlands and the North East. According to chief economist Yael Selfin, narrowing this regional infrastructure divide is essential to boosting productivity and offsetting the diminished contribution of a slowing labour force.