BofA Trims UK Outlook On Energy Price Spike
Bank of America has lowered its UK economic growth forecast for 2027, citing a renewed energy shock that is squeezing household budgets and corporate margins. The revision, announced on Tuesday, September 1, 2026, cuts the bank’s 2027 GDP projection to 1.2% from 1.6% previously, reflecting a sharper-than-expected drag from higher wholesale gas and electricity prices.
The move comes as UK inflation expectations have ticked up, with the Bank of England now facing a tricky trade-off between supporting growth and containing price pressures. BofA economists noted that the energy shock is effectively a tax on real incomes, reducing discretionary spending and dampening business investment.
Why The Energy Shock Hits UK Harder Than Peers
The UK is particularly vulnerable to energy price swings due to its heavy reliance on natural gas for heating and power generation, as well as its limited storage capacity compared to continental Europe. With global LNG supplies tightening and geopolitical tensions keeping a floor under prices, UK households face a prolonged period of elevated bills.
BofA’s analysis shows that every 10% rise in wholesale energy prices shaves roughly 0.15 percentage points off UK GDP growth over a two-year horizon. Given the current trajectory, the bank sees a cumulative hit of about 0.4 percentage points to growth by the end of 2027.
Rate Cut Expectations Shift As Inflation Persists
The growth downgrade complicates the Bank of England’s policy path. Money markets have trimmed bets on aggressive rate cuts, with the first full 25 basis point reduction now not fully priced until May 2027, compared to earlier expectations of a February move. BofA now sees the Bank Rate ending 2027 at 3.75%, up from its previous forecast of 3.5%.
This repricing has boosted the pound, with GBPUSD trading around 1.3180 on Wednesday, up 0.4% on the day. However, a stronger currency could further dampen export competitiveness, adding to the growth headwinds.
UK Equities And Rate-Sensitive Sectors In Focus
The FTSE 100 has been relatively resilient, supported by its heavy weighting in energy and defensive sectors, but the broader FTSE 250 is more exposed to domestic demand. BofA strategists recommend underweighting consumer discretionary and utilities, while favoring energy producers and select financials that benefit from higher rates.
The energy shock also raises the risk of a squeeze on corporate margins, particularly in manufacturing and retail. BofA estimates that UK corporate earnings growth for 2027 could be revised down by 2-3% if energy prices remain at current levels.
What To Watch: October Budget And Energy Price Cap
Investors should keep a close eye on the UK government’s autumn Budget, expected in late October, which may introduce new support measures to cushion the energy hit. Additionally, the next energy price cap announcement by Ofgem, due in November, will provide a clearer picture of household bills for the winter of 2027.
The key data point to watch is the September CPI print, scheduled for October 21, which will show whether the energy shock is feeding through to core inflation. If inflation surprises to the upside, the Bank of England could be forced to hold rates higher for longer, deepening the growth drag.
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