The British Chambers of Commerce (BCC) has issued a stark warning that inflation across the UK will remain stubbornly elevated throughout 2026, with the Middle East conflict blamed for driving up energy costs.
According to the business organisation’s latest economic assessment, consumer prices index (CPI) inflation is now projected to stand at 2.7 per cent by December, significantly higher than the 2.1 per cent previously anticipated.
January’s inflation figure stood at three per cent, and the BCC attributes the slower-than-expected decline to rising oil and gas prices stemming from regional instability.
The geopolitical landscape remains “highly uncertain” and has the potential to “change the economic outlook considerably” as President Donald Trump signals the war will come to a close soon, the report stated.
Inflation is expected ‘to be pushed higher’, according to a new report
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Energy costs are expected to push inflation higher in the short term before eventually moderating. The BCC has also revised down its growth projections, now anticipating GDP expansion of just one per cent this year compared to an earlier estimate of 1.2 per cent.
This follows the Office for Budget Responsibility’s (OBR) own downgrade last week, which cut the 2026 growth forecast from 1.4 per cent to 1.1 per cent.
Looking further ahead, the business group expects growth of 1.3 per cent in 2027 and 1.1 per cent in 2028.
The labour market outlook has similarly deteriorated, with unemployment predicted to climb to 5.5 per cent from its current level of 5.2 per cent, a notable increase from the previous forecast of 5.1 per cent.
GDP has been downgraded by the OBR for 2026. | OBR 
Chancellor admits Iran war makes inflation ‘likely’ | Chancellor admits Iran war makes inflation ‘likely’David Bharier, the head of research at the BCC, said: “The UK economy remains stuck in a low-growth pattern. Our forecast of just one per cent growth in 2026 reflects weak productivity, subdued investment and cautious consumer spending.”
Mr Bharier warned that the recent escalation of conflict in Iran threatens to derail progress on bringing down inflation, with elevated energy prices potentially keeping the rate “firmly above the two per cent target” and prompting the Bank of England to maintain higher interest rates for longer than anticipated.
Chancellor Rachel Reeves acknowledged on Monday that the ongoing war between America, Israel and Iran would “likely to put upward pressure on inflation” in the months ahead.
Prime Minister Keir Starmer echoed these concerns, stating that prolonged conflict in the region increases the likelihood of economic damage reaching British shores.
Donald Trump has told US media that the Iran war is ‘very complete,’ in the biggest indication to date the end could be in sight for the 10-day long war | GETTYMs Reeves convened with G7 finance ministers to explore a coordinated release of international oil reserves aimed at cushioning the economic blow, though the discussions concluded without any concrete agreement on action.
The Chancellor addressed Parliament following the G7 meeting, stating that her economic approach would remain “responsive to a changing world and responsible in the national interest”, while noting that the ultimate impact would depend on how severe and prolonged the Middle East situation becomes.
Despite the gloomy near-term picture, the BCC anticipates some relief on the horizon, projecting inflation to fall to 1.9 per cent by the end of 2027 as energy costs subside and wage growth slows.
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