Four Reasons to Be Cheerful About UK Plc in 2026
Chancellor Rachel Reeves has expanded headroom against the fiscal rules, signaling a quieter 2026. The spring statement will not be formally assessed against these rules, and Reeves plans to hold firm until the autumn budget.
The December PMI from S&P Global rose to 52.1, with the strongest growth in new business for 14 months and improved service-sector demand, suggesting activity may pick up in early 2026.
Recruitment industry signals are cautiously optimistic. Hiring improved in September and October, and many firms expect a pickup in January and February 2026, although December activity was subdued due to pre-budget chatter.
Household spending could rise if the Bank of England cuts interest rates modestly, energy relief of about £150 per year is kept, and tax speculation ends. However, the Bank of England is reluctant to cut rates much further, and the savings rate remains elevated at around 10.7% in the second quarter of 2025.
Productivity improved in the first half of 2025, with output per worker up 1%. Analysts point to IT and possibly artificial intelligence as contributing to a broader productivity upturn, which would support growth into 2026.
Longstanding underinvestment in technology is being addressed by policy shifts aimed at elevating productivity through investment and innovation. Real gains depend on the labour market's ability to reabsorb workers displaced by reforms.
