The OECD has raised its UK growth forecast for 2026 to 1.1%, up from the 0.9% it predicted back in June. The upgrade suggests the UK economy has held up better than expected, even with high energy costs, global uncertainty, and squeezed household budgets working against it.
But don’t read this as a sign the tough conditions are behind us. The OECD expects UK growth to slow again to 1.0% in 2027, with energy prices, borrowing costs, and wider global risks still very much in play.
For UK businesses, it’s a mixed message. Demand has proven more resilient than expected, but that’s no reason to loosen up on financial planning.
Why Has the UK Growth Forecast Improved?
The OECD points to solid domestic demand during the second quarter of 2026 as a key reason behind the upgrade. Consumer spending is also expected to get a boost from recently announced government measures. That resilience is what pushed the 2026 forecast up from 0.9% to 1.1%.
There’s a global element here too. The wider economy has absorbed the recent Middle East energy shock better than many expected. Oil inventories, alternative supply routes, and extra production from outside the Gulf have all helped soften the immediate impact. For businesses, this means the near-term outlook looks slightly brighter. But let’s be clear, this is a modest improvement, not a sign of rapid growth ahead.
Energy Costs Remain a Risk for Businesses
Energy is still one of the biggest wildcards in this outlook. The OECD’s forecast assumes Brent crude averages around $105 per barrel in the final quarter of 2026, before easing during 2027. Higher oil, gas, and fuel prices don’t stay contained either. They tend to ripple through transport, logistics and distribution, production, and supplier costs.
If your business relies heavily on energy or transport, it’s worth avoiding the assumption that these cost pressures will ease anytime soon. A stronger GDP forecast might lift confidence, but higher running costs can still eat into your margins and shrink the cash you have available to invest.
Borrowing Costs Could Stay High
Under its current baseline, the OECD expects UK policy rates to hold steady until late 2027. Meanwhile, long-term government bond yields have climbed sharply across major economies.
This matters for a simple reason: higher borrowing costs affect business loans, investment finance, and working capital.
UK public finances are feeling the strain too. Government borrowing hit £18.3 billion in August, pushing total borrowing for the financial year so far to £77.3 billion. With the Budget coming up, it’s worth preparing your business without basing decisions on tax speculation.
What Should UK Businesses Do Now?
Treat this OECD upgrade as a reason to update your forecasts, not a reason to ease off on financial discipline.
Take time to review your cash reserves, customer payment terms, and any upcoming finance needs, supported by accurate bookkeeping throughout the year. It’s also worth stress-testing your 2027 budget against slower growth and continued pressure from energy and borrowing costs. If you’re planning to invest, compare the cost of borrowing against your available cash before taking on new debt.
When it comes to tax planning, stick to rules that are already confirmed. Wait until the government shares full details before adjusting your plans around any Budget changes and lean on proper tax planning rather than speculation.
How Lanop Can Help
Economic forecasts are useful, but every business feels these pressures differently. At Lanop Business & Tax Advisors, we help businesses assess cash flow, review forecasts, plan tax efficiently, and understand how economic or Budget changes might affect their finances, drawing on our wider financial planning services.
The OECD’s 1.1% growth upgrade is welcome news, but the outlook is still far from certain. Businesses that review their numbers early will be in a much better position to respond, whatever happens with costs, demand, or tax rules. Contact Lanop today to book a free consultation and get your forecasts ready for whatever comes next.
