UK economic outlook improves but firms wary of investment, BCC says

LONDON, Sept 1 (Reuters) - Britain's economy is set to grow a bit faster than previously expected in 2026 after withstanding the initial impact of the Iran war but firms remain wary about investment, the British Chambers of Commerce said on Tuesday.

"Our latest forecast paints an uncertain outlook for the UK economy. Businesses have absorbed another major geopolitical shock and shown real resilience," said David Bharier, the BCC's deputy director of economics and insights.

"But growth remains subdued, and rests on consumption, not investment."

• The BCC said it expects the economy to expand by 1.0% in 2026, slightly better than a previous forecast of 0.9% growth made in June

• Business investment is set to fall by 0.2% this year, a smaller drop than the previous forecast for a fall of 2.2%. Investment is projected to grow by 0.4% in 2027

• Inflation is anticipated to peak at 3.6% by the end of the year, down from 3.8% in the previous forecast

• The BCC said higher household energy costs, caused by the Iran war, and risk of a rise in food prices due to a drought this summer were the main drivers of inflation

• Unemployment is forecast to reach 5.0% by the end of 2026 and hit 5.4% next year. Youth joblessness is expected to reach a high of 17.6% in 2027

• UK exports are projected to grow 0.4% in 2026, reflecting some easing in tensions in the Middle East, before expanding more quickly in 2027 and 2028.

(Reporting by Suban Abdulla; editing by William Schomberg)