HomeNewsNewsInvestors Optimistic, Households Strained: A Mixed Start to the UK Economy in 2026

Investors Optimistic, Households Strained: A Mixed Start to the UK Economy in 2026

  • January 23, 2026
  • Posted by: wp_update-1695559536
  • Category: News
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The latest UK economic news points to weak growth, easing but still above-target inflation, and expectations of further interest rate cuts later in 2026. The labour market is softening, with rising unemployment weighing on consumer spending and worrying retailers and policymakers.

Growth and business activity

•  UK GDP growth is very subdued, with forecasters expecting 2026 to be another anaemic year as higher taxes and weak consumer spending drag on the economy.

•  Business sentiment is fragile: only about half of firms expect higher sales this year, and insolvencies are rising, especially in retail, hospitality and leisure.

Inflation and cost of living

•  CPI inflation has eased to around just over 3% year-on-year as of late 2025, down from much higher levels but still above the 2% target.

•  Retailers warn that shop price inflation may stay elevated into 2026 because of higher labour and operating costs, even as energy and goods price pressures ease.

Interest rates and mortgages

•  The Bank of England’s base rate currently stands at 3.75% after a cut in December 2025, following several reductions from its 2023 peak of 5.25%.

•  Lenders such as Nationwide have started to trim standard and tracker mortgage rates from 1 January 2026, slightly easing pressure on some homeowners.

Jobs and unemployment

•  Unemployment is edging up from around 4.1–4.4% in 2024–25, with major retailers like Next flagging an emerging unemployment “crisis” that could hit spending further.

•  A loosening labour market and slower wage growth are expected to support further falls in inflation, but they also add to concerns about household incomes and demand.

Markets and sector snapshots

•  The FTSE 100 briefly pushed above 10,000 at the start of 2026, signalling some investor optimism despite the sluggish domestic backdrop.

•  Technology, AI, renewables, and digital media (streaming, gaming, music) are relative bright spots, with UK entertainment and media revenues hitting about £13.3bn