KPMG – UK Economic Outlook, March 2026

The report analyzes the UK economy with a focus on the impact of the Middle East conflict causing an energy price shock.

Households are partially shielded from energy price rises until July due to the Ofgem energy price cap but will face higher energy bills in Q3. Inflation is expected to peak above 3.5% in Q3, with businesses likely passing on energy cost increases to consumers. The Bank of England may only cut interest rates once in 2026, postponing further cuts until 2027. Economic activity is expected to slow as households reduce discretionary spending and businesses cut investment due to higher costs. The UK’s weak growth over the past two decades has widened the living standards gap compared to the US and Eurozone, potentially worsening this year. Government fiscal headroom is constrained by weaker growth and higher interest rates; shielding households from gas price rises in Q3 could cost up to £5 billion. The adoption of GLP-1 drugs for weight management could significantly shift consumer spending patterns in the UK over the next five years. Forecasts for 2025-2027 show modest GDP growth, consumer spending, and investment, with inflation gradually decreasing and unemployment slightly rising.