Investing.com — BofA Securities lowered its 2027 growth forecast for the United Kingdom to 1.2%, a 10-basis-point cut, citing higher energy prices and uncertainty ahead of the government’s Autumn Budget.
The economists, Sonali Punhani and Ruben Segura-Cayuela, raised their 2026 growth forecast by 10 basis points to 1.2%, reflecting stronger-than-expected growth in the first half of the year. They kept the 2028 growth forecast unchanged at 1.5%.
BofA said growth is likely to slow in the coming months by more than previously expected because of higher energy prices and Budget uncertainty. Risks to its forecasts are tilted to the upside, as sentiment data has proved resilient, with Purchasing Managers’ Index readings surprising to the upside in August, buoyed by services.
Potential fiscal loosening in the Budget could also pose upside risks to growth, BofA said, provided it does not trigger a significant tightening in financial conditions from a large or unexpected fiscal slippage.
The broker does not expect a large package of fiscal loosening in the Autumn Budget, given the government’s commitment to its fiscal rules, though it said some flexibility could be used within the debt rule to increase borrowing for investment in a limited manner.
BofA raised its UK inflation forecast for the fourth quarter of 2026 to 3.4%, up 20 basis points, reflecting higher oil and gas prices than assumed under its post-peace-deal outlook.
The broker raised its 2027 inflation forecast more sharply to 2.6%, up 30 basis points, for the same reason.
Core inflation forecasts were raised more modestly, to 2.8% for 2026, unchanged, and 2.3% for 2027, up 10 basis points. The 2028 forecasts for both headline and core inflation remained unchanged at 2.1%.
Headline inflation is now expected to peak at 3.5% in November, versus a prior forecast of 3.3% in September and November of 2026, BofA said, and is expected to stay above 3% until the second quarter of 2027.
BofA kept its Bank of England rate call unchanged, expecting rates to remain on hold through 2026, followed by a single 25-basis-point cut in November 2027 to 3.5%.
The broker said the move higher in its inflation forecasts due to higher energy prices makes the rate outlook “a close call”. It said the bar for a September rate hike is very high, but that November, December and February remain live meetings.
The labour market continues to soften, with unemployment at 4.9%, alongside a drop in payrolls and vacancies, BofA said. The broker expects the unemployment rate to peak at around 5.2% in the middle of next year.