UK growth outlook 'not overly favourable' as 'slowdown likely on the way' in 2026
We finally received some long awaited good news out of the UK economy yesterday in the form of a remarkably robust November growth figure. Britain’s economy roared back to life with solid expansion of 0.3% MoM, well above the near stagnation pencilled in by economists (+0.1%).
To our surprise (and most of the market it seems), businesses appeared largely unfazed by the high uncertainty surrounding the Autumn Budget, while consumers continue to spend despite the clear cooling in the jobs market in the past year or so.
Sterling received a modest leg up on the news, and could be poised for further gains should the upbeat data dampen the likelihood of further BoE rate cuts (the next 25bp cut is now not fully priced in until June).
We would caveat any optimism with a few points. Firstly, this monthly growth number tends to be very volatile and hard to predict (the full quarter figures due in mid-February should be much more revealing). The contraction in October also means that Britain’s economy also looks set to have posted only modest expansion in Q4 (probably something in the region of 0.1-0.2%).
We contest that the outlook is also not overly favourable in 2026, with a mild slowdown likely on the way. While a continued drop in inflation should ease pressure on household pay packets, a growing tax burden, high mortgage rates and a further tick upwards in joblessness all present material downside risks to the outlook.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
