OBR Forecast October 2026: UK Growth Cut to 1% for 2027 and Inflation Peaking Near 3.75%, What Founders Should Plan For
The Office for Budget Responsibility's October 2026 forecast expects UK growth of about 1.25% in 2026 and 1% in 2027, with inflation peaking at around 3.75% in early 2027 before returning to 2% in 2028.
By Entrepreneur Group · Published
The Office for Budget Responsibility (OBR) expects the UK economy to grow by about 1.25% in 2026 and 1% in 2027, according to its Economic and fiscal outlook published with the Autumn Budget on 28 October 2026. It forecasts CPI inflation to peak at around 3.75% in early 2027, driven by higher energy prices linked to the Middle East conflict, before falling back to 2% in 2028.
For founders, the forecast points to a slower 2027, higher costs for longer and borrowing rates that the OBR assumes will rise rather than fall.
Growth: a weaker 2027
The OBR forecasts real GDP growth of about 1¼% in 2026 and 1% in 2027. IBTimes reports that the 2026 figure is up from 1.1% in March, while the 2027 figure is down from 1.6%, and that growth is then forecast at 1.6% in 2028, 1.8% in 2029, 1.7% in 2030 and 1.6% in 2031. The report quotes the OBR as saying the downgrade is "concentrated in 2027, rather than reflecting weak growth throughout the forecast period".
The OBR says its business investment forecast is "slightly higher" than in March, though it does not give a figure in its summary.
Inflation and energy prices
The OBR now expects inflation of 3½% in 2027, compared with the 2% it expected in March. It forecasts a peak quarterly rate of 3¾% in early 2027, falling to 2% in 2028 as energy prices drop. IBTimes puts the peak at 3.8% in the first quarter of 2027 and the return to target in the third quarter of 2028.
The forecast rests on market prices for energy. The OBR assumes oil peaks at $95 a barrel in the second quarter of 2026 and falls to just above $70 by late 2028, while gas peaks at about 150p a therm at the end of 2026 and falls to around 70p from mid-2028. It links the rise to the start of the current Middle East conflict.
IBTimes reports that the OBR expects real household disposable income per person to fall by 0.6% in 2026-27, then grow by an average of 0.6% a year over the rest of the forecast. That matters for any business selling to consumers.
Interest rates and the public finances
The OBR's central forecast assumes Bank Rate reaches "just over 4¼ per cent by mid-2027" and just over 4½% by the end of the forecast period. These are assumptions based on market expectations, not a Bank of England decision.
On the public finances, the OBR forecasts borrowing of 4.2% of GDP (£133 billion) this year, down from 4.4% (£134 billion) in 2025-26. The government meets its main fiscal rule, a current budget surplus in 2029-30, by £15 billion, with a 56% chance of meeting it. Tax receipts rise from 41.4% of GDP this year to 42.9% by 2031-32. IBTimes reports that debt-interest costs are forecast to be about £14 billion a year higher than the OBR projected in March.
What this means for founders
This section is editorial guidance, not financial advice.
- Plan for higher costs into 2027. If the OBR is right, inflation stays above 3% through 2027, so supplier prices, wages and energy bills may keep rising.
- Stress-test borrowing. The OBR assumes rates rise towards 4¼% by mid-2027. If you have variable-rate debt or plan to borrow, model what higher rates would do to repayments.
- Be cautious with 2027 sales targets. A forecast of 1% growth and falling real incomes in 2026-27 suggests consumer demand may be soft.
- Remember these are forecasts. The OBR's numbers depend heavily on energy prices and can change by the next forecast.
Frequently asked questions
What is the OBR growth forecast for the UK in 2027?
The OBR's October 2026 Economic and fiscal outlook forecasts UK GDP growth of about 1% in 2027, down from 1.6% in its March forecast, after about 1¼% in 2026.
When will UK inflation fall back to 2%?
The OBR expects CPI inflation to peak at around 3¾% in early 2027 and fall to the 2% target in 2028 as energy prices drop.
What does the OBR assume for interest rates?
The OBR's central forecast assumes Bank Rate reaches just over 4¼% by mid-2027 and just over 4½% by the end of the forecast period, based on market expectations.
Sources
- Office for Budget Responsibility: Economic and fiscal outlook, October 2026 (executive summary) (reviewed 30 October 2026)
- IBTimes UK: US-Iran war to keep UK inflation high and growth weak for years, OBR warns (29 October 2026) (reviewed 30 October 2026)