9 June 2026: The CBI has cut its forecast for GDP in 2026

A growing number of Bank of England policymakers have signalled that interest rates are unlikely to rise in the near term, even as the war in Iran continues to push inflation higher.

The latest to speak out is Independent MPC member Alan Taylor, who said rates at their current level are already acting as a restraint on the economy and that he sees no case for tightening further.

Speaking in a Sky News interview, the rate-setter indicated he was broadly content with the current rate setting, short of a severe deterioration in conditions.

"I feel comfortable where we are unless we get the worst-case scenario," Taylor said. "But I really want to get that sense that this is moving behind us." Taylor did not tell Sky what he believed the worst-case scenario would look like.

Before the outbreak of the US-Israeli conflict with Iran, Taylor had been among the most vocal proponents of rate reductions within the MPC. Since the conflict began, he and the majority of committee members have voted to hold borrowing costs at their current level. The MPC held the Base Rate at 3.75% at its most recent meeting.

Taylor's remarks are consistent with recent guidance from the Bank's most senior figures. Governor Andrew Bailey, speaking at the Reykjavik Economic Conference in late May, said the MPC had already effectively tightened monetary conditions by removing market expectations for rate cuts, and that the Bank was prepared to tolerate a period of above-target inflation rather than risk further damage to an economy already feeling the strain of higher energy costs, weaker consumer spending and a softening labour market.

"Given the context of the softness in the real economy and uncertainty around the scale and duration of the shock, tolerating above-target inflation temporarily to provide some support for the real economy is an appropriate way to approach the trade-off," Bailey said. "But that tolerance would weaken if signs of second-round effects begin to emerge."

The Confederation of British Industry cut its forecast for the country’s economic growth and predicted unemployment would rise to its highest level in more than a decade as the war in Iran pushes up energy prices and squeezes living standards.

Consumer price inflation looks set to peak at 3.7% in the first quarter of next year, up from 2.8% in April and in line with the rise predicted by the Bank of England.

“What’s happening around the world is compounding the UK’s low-growth story. We saw weak momentum throughout 2025, but if it weren’t for the latest global shocks, we could be having a much more positive conversation about the economy today,” CBI Chief Economist Louise Hellem said.

Hellem told reporters she believes UK GDP is set to grow by 1.1% in 2026 and 0.9% in 2027, 0.2 and 0.6 percentage points lower than the CBI forecast last December, while unemployment is likely to peak at 2.0 million or 5.5% of the workforce, its highest since mid-2015, compared with a previous 5% forecast.

She expects the BoE to leave rates unchanged at 3.75% through this year and possibly next. The CBI’s forecasts are similar to those released in the past month by the OECD and the IMF.

CBI Chief Executive Rain Newton-Smith last week urged Prime Minister Keir Starmer’s government not to treat business as “a cash tap”. It said businesses’ contribution to overall taxation had risen to a record high.

BP has revealed it paid £1.2 billion in UK taxes in 2025, placing the oil giant at the centre of a growing debate over how Britain taxes energy companies amid rising profits, shifting energy policies and mounting pressure on public finances.

The disclosure comes as the Government moves to tighten tax rules for oil and gas firms, including measures to prevent companies from reducing their UK tax liabilities through overseas corporate structures. The plans are expected to raise hundreds of millions of pounds and have renewed attention on the contribution major energy companies make to the UK economy.

According to BP, the £1.2 billion figure includes £422 million paid through the Energy Profits Levy, commonly known as the windfall tax, which is charged on profits from UK oil and gas production at a rate of 38 percent. The company also paid corporation tax, employer National Insurance contributions, business rates and customs duties.

When taxes collected on behalf of the Government are included, such as employee income tax, VAT and fuel duties, BP said its total tax contribution reached £3.4 billion in 2025.

Sterling regained its poise yesterday after a sharp fall on Friday, as traders saw how well the U.S. economy is faring compared with both the UK and the Eurozone.

It rallied to a high of 1.3369 but fell back as risk appetite dropped, closing at 1.3369.

The relative calm in inflation expectations will likely cheer Federal Reserve officials as they prepare for next week’s policy meeting. The Fed is expected to leave its benchmark interest rate in the 3.50 percent - 3.75 percent range at that meeting, as officials wait for more data on the economic impact of the U.S.-backed war with Iran.

The inflation outlook was little changed in May, despite strong upward price pressure from the war in the Middle East, according to a New York Federal Reserve survey.

Inflation a year from now was expected to be 3.5 percent, down from 3.6 percent predicted in April, while respondents saw inflation three and five years from now at 3.1% and 3.0%, respectively.

This brings into sharp focus the unlikely possibility that the FOMC will agree to wholesale rate cuts under its new Chairman, Kevin Warsh, despite President Trump's constant prompts.

While the projected path of price pressures was little changed in May, the regional Fed’s survey found that uncertainty over future inflation rose relative to near-term measures, amid rising anxiety about current and future personal finances.

Trump has ramped up pressure on Kevin Warsh ahead of his first meeting as Chair of the Federal Reserve, demanding lower interest rates days after a strong US jobs report fuelled bets on higher borrowing costs.

In a Sunday interview, the President warned that the country should not be “penalised by immediately raising interest rates” as investor expectations rose that the Fed would raise them by the end of the year. “There’s no reason to raise interest rates,” Trump told NBC’s Meet the Press.

“We built the country by doing great and having low rates. What they do is, when they raise interest rates, they try to kill success. I don’t want to kill success. We should actually lower interest rates.”

Trump has called for the Fed’s benchmark rate to be slashed to 1 percent or lower. The President repeatedly criticised Warsh’s predecessor, Jerome Powell, as a “moron” and a “numbskull” for failing to cut rates quickly enough.

Given that Warsh is “Trump’s man”, he may need to moderate his language should the Fed fail to lower interest rates over the remaining 2½ years of Trump’s term in office.

FIFA estimates the U.S. will gain about $17.2 billion in GDP from the tournament, with $30.5 billion in gross output and 185,000 U.S. jobs created. Combined with the 2025 Club World Cup, FIFA and the WTO estimate up to $47 billion in economic output for the U.S. across both events. The tournament is expected to draw 6.5 million attendees across the U.S., Canada, and Mexico.

The build-up to the tournament is now in full swing, with the first game set to take place after the opening ceremony on Thursday evening.

Los Angeles alone is projected to see $594 million in economic impact and nearly 180,000 visitors, with hotel revenue up 22%. Across all U.S. host cities, pre-event analysis projects $556 million in visitor spending, with most of it concentrated in major metros such as East Rutherford (New Jersey), Inglewood (California), Arlington (Virginia), Atlanta (Georgia), and Seattle (Washington).

The dollar index was unable to sustain its rally above 100 yesterday and closed at 99.82, although latent buying interest pushed it back up to 100.00. It is understood that there are significant sell orders around the 100.20 level, which traders have been front-running.

The ECB has kept borrowing costs on hold for some time as Eurozone price rises have been largely controlled. Still, the U.S.-Israeli war against Iran and the near-total closure of the Strait of Hormuz have sharply pushed up global energy costs, feeding into higher inflation.

Consumer price rises in the 21 countries of the Eurozone accelerated to 3.2% in May, considerably above the ECB's 2% target.

Analysts expect the Central Bank's Governing Council to deliver a 0.25% increase to the key deposit rate, taking it from 2.00% to 2.25%, when it meets on Thursday.

"Anything but a rate hike at the ECB meeting would be a big surprise," said ING economist Carsten Brzeski.

Other major Central Banks, including the Federal Reserve and the Bank of England, are expected to keep rates on hold when they meet next week as they assess the fallout from the conflict.

The ECB’s move this week would mark the first time the Frankfurt-based institution has increased rates since September 2023, as it battled a historic surge in inflation unleashed by Russia's invasion of Ukraine.

Following that, the Central Bank had delivered a series of cuts as inflation eased, but has held rates steady since June last year.

Some economists have criticised the expected hike, as it will further constrain growth in the sluggish Eurozone by making it more costly for households and businesses to borrow, prompting a fall into stagflation, with growth falling while prices continue to rise.

This comes as the war is already adding to headwinds, with the single currency area heavily dependent on energy imports.

The European Union last month slashed its growth forecast for the eurozone to 0.9% for 2026, down from a previous prediction of 1.2%.

Revised data released last Friday showed the eurozone economy contracted 0.2% in the first quarter.

Chief economist at Allianz, Ludovic Subran, told reporters that raising borrowing costs would be a bid to "provide reassurance" that the ECB was keeping an eye on higher inflation.

But he added: "This hike is not necessary; the ECB could wait, especially since the slowdown in growth is clear." The very fact that the ECB has signalled it will not be cutting rates any time soon is equivalent to at least one rate hike.

ECB officials may, however, be nervous about waiting too long to act, especially after facing criticism for moving too slowly to tame the inflation surge in 2022.

Most analysts stress that the economic backdrop now is different to that in 2022; inflation was already elevated before the outbreak of the war in Ukraine, and the global economy was struggling with post-pandemic supply chain woes.

Given that, they don't expect the bank’s move this week to herald the start of an aggressive rate-hiking cycle.

ECB chief economist has been constrained in his recent comments, but has joined the ranks of the inflation hawks, saying that the energy shock caused by the Middle East conflict will likely have a persistent impact on inflation even if there is a quick solution to the war.

The Euro clawed back some of its losses from Friday as the dollar shied away from a decisive break of the 100 level. The common currency reached a high of 1.1554 and closed at 1.1534.

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