The UK economy is set to begin recovering in 2026 after a period of stagnation in the second half of 2025. In a report published on Thursday, UBS says GDP growth will pick up from a sluggish 0.1% to 0.3% in Q1 and 0.4% in Q2 2026. The bank forecasts growth of 1.1% for the full year. Moreover, UK GDP is expected to accelerate to 1.4% in 2027.

Analysts link a slowdown last year to uncertainty around the government budget, which has begun to ease. Nevertheless, UBS warns of persistent risks from unstable global trade and domestic political jitters in the Kingdom.

Inflationary pressure is likely to ebb away. After January’s 3.0% reading, inflation could drop to the 2% target as early as April thanks to lower household energy spending. UBS expects average inflation to be about 2% in 2026 versus 3.4% in 2025. Against this backdrop, the Bank of England will likely continue to ease monetary policy: UBS anticipates a 25 bp rate cut in March (to 3.5%) and a similar rate cut in June (to 3.25%).

The government’s budget statement scheduled for 3 March will hardly produce surprises. UBS believes the fiscal buffer will be below the November estimate of £22bn, which should keep the cabinet from launching large new policy initiatives.