UK Economic Outlook

UK growth amounted to 1.3% in 2025, far below the historical trend rate. Growth is expected to slow in 2026 amidst considerable headwinds, including domestic policy pressures and the emerging conflict in Iran. The latter also represents a significant risk to the global outlook, though any effects will primarily be concentrated in the second half of the year.

The economy’s weak momentum has manifested in a loosening labour market. The unemployment rate climbed to 5.2% in Q4 2025, with further increases projected for this year.

Inflation started the year on a downward trajectory, amidst evidence of domestic pressures easing. However, the inflation and interest rate outlook is challenged by the outbreak of the conflict, which poses a significant upside risk through the commodity price channel.

London, the South East, and the North East are set to drive growth in 2026, with the devolved nations lagging behind. Alongside a weaker growth outlook for the UK as a whole next year, annual growth is expected to slow across all but one region in 2026.

Eurozone growth was stronger in 2025, supported by looser monetary conditions, easing inflation, and a pick-up in domestic demand. The US saw weaker growth in 2025, hit by the effects of tariffs and the government shutdown. Meanwhile, China achieved its annual growth target of 5.0%.

After driving activity in 2025, London is projected to remain the fastest-growing region this year. At the other end of the scale, the devolved nations are expected to continue to drag on growth in 2026.