UK Outlook: Growth Softens in 2026, Gains Momentum in 2027

UK GDP growth is projected to dip to 1.1% in 2026 due to fiscal drag before recovering to 1.3% in 2027. Inflation is expected to hit the 2% target by spring, enabling the Bank of England to cut rates at least twice this year.

Key Takeaways

• 1.UK GDP growth is forecast to slow to 1.1% in 2026 (from 1.3% in 2025) before recovering to 1.3% in 2027.
• 2.Inflation is expected to reach the 2% target by spring 2026, earlier than previously anticipated, driven by lower energy prices and labour slack.
• 3.Monetary policy is expected to ease with at least two rate cuts in 2026 as labour market slack increases.

Table of Contents

• Stronger GDP Growth Momentum in 2025, But Below Potential
• UK's Prospects for Economic Activity Should Improve Next Year
• Inflation Expected to Return to Target by Spring
• While monetary policy loosens, fiscal policy will be a drag

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