OBR Forecast: UK Growth To Slow As Unemployment Rises
The UK’s latest economic outlook, outlined in Chancellor Rachel Reeves’ Spring Statement (following up on the 2025 Autumn Budget) and accompanying forecasts from the Office for Budget Responsibility (OBR), paints a cautious picture for the years ahead. While inflation appears to be easing, the economy is expected to experience slower growth and a modest rise in unemployment before conditions gradually improve later in the decade.
Key Points
- Office for Budget Responsibility forecasts suggest UK unemployment could peak at around 5.3% in 2026 before gradually falling later in the decade.
- Economic growth projections have been revised downward, with GDP expected to expand by around 1.1% in 2026.
- Inflation is forecast to fall closer to the Bank of England’s 2% target, although geopolitical tensions could disrupt this trajectory.
- Despite weaker growth forecasts, reduced borrowing costs have slightly improved the government’s fiscal headroom.
- Separate survey data indicates that around one in four UK employees are considering changing jobs in the near future.
- Dissatisfaction with pay, lack of recognition, limited career progression and workplace stress are among the main drivers behind potential job moves.
According to the OBR, the UK unemployment rate is projected to peak at 5.3% in 2026, higher than previously forecast, before gradually falling to around 4.1% by 2030. The anticipated rise in unemployment reflects weaker hiring demand and a slowdown in economic activity observed towards the end of last year.
Economic growth projections have also been revised downward. UK GDP is now expected to expand by 1.1% in 2026, compared with an earlier forecast of 1.4%. While growth is predicted to strengthen slightly in subsequent years, reaching 1.6% in both 2027 and 2028, the overall pace remains subdued when compared with historical averages. As a result, living standards are expected to improve only modestly over this period.
On a more positive note, inflation has fallen faster than anticipated. Current projections suggest that inflation could decline to 2.3%, and return to the Bank of England’s 2% target by late 2026 or early 2027. However, these projections were made before renewed conflict in the Middle East pushed up global oil and gas prices. Should energy costs remain elevated, inflationary pressures could re-emerge, potentially delaying anticipated reductions in interest rates.
Despite these challenges and the projected rise in unemployment, Reeves maintained that the government’s economic strategy remains robust and is designed to protect households from external shocks. She also acknowledged concerns about rising youth unemployment and signalled that further reforms aimed at supporting young people into work will be announced in the coming months.
Reaction from business groups and economists has been broadly cautious. While many welcomed the relative stability of current economic policy, there have also been calls for stronger measures to stimulate growth, reduce unemployment, and support businesses facing persistent cost pressures, particularly if geopolitical tensions continue to disrupt global markets.
Fiscal indicators offer some limited reassurance. Lower borrowing costs have increased the government’s fiscal “headroom” under its borrowing rules, potentially giving the Chancellor more flexibility ahead of the autumn Budget. However, tax revenues are projected to reach record highs as a share of GDP by 2030–31, raising concerns about the potential impact on investment, business expansion, and household finances.
Overall, while there are signs of stabilisation, including falling inflation and improved fiscal buffers, the UK economic outlook remains uncertain. Sluggish growth, rising unemployment in the short term, and continuing global instability all present significant challenges ahead.
Employee Retention Challenge Grows As A Quarter Of Workers Contemplate Job Change
A significant portion of the UK workforce is considering switching jobs this year, with a new survey from Ciphr revealing that around one in four employees (24%) are actively seeking or planning a job move. Younger workers are especially likely to be job hunting: with nearly a third (32%) under age 34 looking to switch roles.
The primary motivator driving this trend is dissatisfaction with pay, with over a third (36%) citing feeling underpaid as their main reason for leaving. A lack of recognition for contributions is another major factor; about a quarter feel undervalued at work. Women report both issues more frequently than men.
Other common reasons include limited career progression opportunities, lack of enjoyment or engagement at work, poor leadership, high stress levels, and inadequate work-life balance. Many employees also express a desire for more fulfilling roles or flexible working arrangements.
The findings highlight retention challenges across several sectors, including hospitality, sales, charity, social care, and consulting, where job-switching intentions exceed the national average.
Employers: What This Means
- Slower economic growth may lead to reduced hiring demand and a more cautious approach to workforce expansion.
- Rising unemployment may slightly ease recruitment pressures in some sectors, although skills shortages are likely to persist in specialised roles.
- Employee retention remains a key challenge, particularly where workers feel underpaid or undervalued.
- Employers may need to focus on competitive pay, recognition, and career development opportunities to retain skilled employees.
