Rising Energy Costs Threaten UK Growth Despite 1.3% Expansion
Saudi Arabia Reroutes Oil Exports as Houthi Strikes Target Yanbu CityAM.com is the online presence of City A.M., London's first free daily business newspaper. Both platforms cover financial and business news as well as sport and… The UK economy is forecast to grow in 2026, but rising energy bills and higher borrowing costs will weigh on activity in the second half of the year.
The economy is set to grow 1.3 per cent this year, according to KPMG’s latest economic outlook, after household spending was “supported by warmer weather” while businesses continued to invest in technology.
The consulting firm also estimates the economy will grow 1.4 per cent in 2027.
But spending is set to slow in the second half of the year as households deal with rising energybillsand slow wage growth.
“Households’ spending power is likely to come under increasing pressure,” said Yael Selfin, chief economist at KPMG UK.
“The longer-term challenge is how to sustain stronger growth as the contribution from a growing labour force diminishes.” Higher wholesale gas prices are expected to trickle into household energy bills this autumn, putting renewed pressure on inflation, as the conflict in Iran continues to affect the market.
The Ofgem energy price cap is forecast to rise by roughly four per cent in October.
The government’s reduction in VAT on household energy bills is anticipated to only partially offset the increase.
The rise also comes as the Bank of England is expected to hike interest rates in the coming months in an effort to combat higher energy prices, a weaker labour market and subdued domestic inflation.
The Monetary Policy Committee (MPC) opted to hold rates at 3.75 per cent last week, but the base rate is expected to be lifted to 4 per cent at the November meeting.
The Chancellor is also facing a fiscal headache in the upcoming Autumn Budget, having limited scope to provide significant support for both growth and the cost of living.
The rise in borrowing costs following the Iran war has reduced the £23.6bn of headroom recorded at theSpringForecast by roughly £9bn.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | +0.34% |
| WTI Crude | $96.90/bbl | +0.21% |
| EN590 Diesel | $846/MT | +0.18% |
| Jet Fuel A-1 | $1090/MT | +0.55% |
| Mazut M100 | $450/MT | -0.15% |
| Bitumen 60/70 | $470/MT | +0.08% |
| Sulphur Gran 99.5% | $470/MT | -0.44% |
| Urea 46% Gran | $650/MT | +1.12% |
| NPK 16-16-16 | $460/MT | -0.28% |
| Nat Gas TTF | $15.42/MMBtu | +0.92% |
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