What's happened
KPMG predicts the UK economy will grow by 1% in 2026, down from 1.4% this year, amid rising unemployment and slowing wage growth. Business confidence remains low, and household spending is expected to decline further, influenced by recent budget policies and economic uncertainties.
What's behind the headline?
The UK economy's outlook for 2026 is bleak, with KPMG forecasting a slowdown to 1% growth, down from 1.4% in 2025. This decline is driven by weak consumer sentiment, rising unemployment to 5.2%, and slowing wage growth towards 3%. The service sector continues to contract, with business sentiment at record lows, reflecting ongoing uncertainty. The extension of income tax freezes and previous budget policies have dampened household spending and business investment, creating a cautious economic environment. While inflation is expected to fall below the Bank of England’s 2% target, the likelihood of interest rate cuts remains uncertain, with rates forecasted to stay around 3.25%. The upcoming official economic projections will be critical in shaping future policy, but current indicators suggest a challenging year ahead, with slow recovery expected in 2027 as government initiatives begin to take effect. The persistent low confidence among business leaders underscores the fragile state of the economy, and unless structural reforms are implemented, the outlook remains subdued.
What the papers say
The Guardian reports that KPMG predicts a cooling economy with GDP growth slowing to 1.0% in 2026, citing weak consumer sentiment and rising unemployment. The Mirror highlights that the forecast includes unemployment rising to 5.2% and wage growth slowing to 3%, with household spending under pressure from recent budget policies. Both sources agree that business confidence remains low, with the Institute of Directors noting near-record lows in economic confidence and cautious investment plans. The Guardian emphasizes that the upcoming economic projections will be pivotal, while The Mirror points out that the cautious spending and investment reflect broader economic uncertainty. The articles collectively portray a UK economy struggling with structural headwinds, policy impacts, and subdued growth prospects, with little immediate relief in sight.
How we got here
The UK economy started 2025 with modest growth, but this slowed over the year due to global uncertainties, inflation peaks, and domestic policy impacts. The previous government’s budget measures, including tax hikes and increased labour costs, contributed to reduced consumer and business activity. As the government prepares for its upcoming economic projections, concerns about a widening fiscal deficit and sluggish growth persist, with industry data indicating cautious spending and investment ahead of the new budget.
Go deeper
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The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based.
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KPMG International Cooperative is a multinational professional services network, and one of the Big Four accounting organizations.