- The UK economy grew by a less-than-expected 0.1% in the final quarter of 2025, resulting in annual growth of 1.3%. Growth in 2026 is expected to ease slightly, with subdued activity expected in the first few months of the year.
- The Autumn Budget unveiled tax rises worth £26bn by the end of this parliament but also eased fiscal policy in the interim. The resulting increase in fiscal headroom from £10bn to £22bn eased bond market concerns over the government’s ability to meet its fiscal rules.
- Policy announcements mean that both taxation and public spending as a share of GDP are expected to reach some of the highest levels not seen outside recessions or wartime. Government debt is also expected to remain at a high level throughout the parliament.
- Uncertainty about the global trading environment continues to weigh on sentiment. The latest Deloitte CFO survey for the fourth quarter of 2025 shows that geopolitics remains the top external risk for businesses, with finance leaders choosing to prioritise defensive strategies such as cost reduction. Capex, discretionary spending and hiring are expected to fall over the next 12 months, albeit optimism over the potential for AI to boost long-term productivity increased. Other timely economic indicators suggest consumers also remain cautious.
- While inflation remains above the Bank of England’s 2% target, the Bank expects inflation to fall sharply in the first few months of the year due to falling food and energy bills. After reducing interest rates in December by 0.25 percentage points to 3.75%, the Bank signalled a continued policy of gradual monetary policy easing.
- Timing: the government’s next fiscal update took place on 3 March.
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