Promises must become reality not just rhetoric

AS WE come to the end of another turbulent year for the UK economy, what does the next 12 months hold for the economic prospects of the nation?

- DYLAN JONES-EVANS

Chancellor Rachel Reeves

The good news is that many commentators are now expecting the UK economy to look steadier on paper with inflation lower than its peak, interest rates continuing to fall, albeit slowly, and growth positive rather than negative.

But that is not the same as recovery and a slightly better set of numbers can still leave households stretched, businesses cautious and public services under strain because the deeper problem is the UK economy's weak capacity to grow.

Beneath the surface, the same constraints keep reappearing in every serious forecast and business survey and if 2025 was about stabilising, 2026 should be about whether the country can grow again in a way people can actually feel in their wages, bills and opportunities.

Unfortunately, most economic forecasters currently expect growth to be modest with the OECD projecting UK GDP growth of around 1.2% in 2026, with inflation still above target.

The CBI's more recent forecast has been similar arguing that while the economy will improve, it may not be by enough to remove the sense of fragility many households and firms still feel after a prolonged period of weak real wage growth and repeated shocks.

The Bank of England has projected that inflation will rise more slowly into early 2026, although there may still be the “stickiness” underneath the headline such as services inflation, continued wage pressures in parts of the economy and smaller firms remaining wary of borrowing for growth.

However, the cost-of-living problem also doesn't disappear just because inflation falls as it only slows the rate prices rise, not reverse what has already happened.