Britain's economy is projected to expand by 1.4% this year, a performance that, while exceeding major European nations, falls short of the government's ambition to lead growth among wealthy economies. This forecast represents the nation's strongest economic performance since 2022, a year marked by recovery from pandemic-related lockdowns.
Britain's Position Among Wealthy Nations
Upon taking office in 2024, Prime Minister Keir Starmer committed to positioning Britain's economic development at the forefront of the Group of Seven (G7) countries. The nation has grappled with sluggish growth, which has impacted household incomes and complicated fiscal planning for the government. A 1.4% growth forecast would place Britain third among G7 nations, behind only the United States and Canada. This contrasts with Germany, Europe's largest economy, which registered only 0.2% growth last year. Britain is expected to maintain this third-place standing throughout the current year.
The country is now anticipated to exhibit modest growth in the final quarter of the year, defying predictions of a flat performance from some analysts, including the Bank of England. However, this upturn may not entirely alleviate concerns within the Labour government regarding the economic climate, particularly in light of weaker job market indicators and subdued consumer spending.
Following a robust start to 2025, economic expansion moderated in the latter half of the year. Economists surveyed by Bloomberg anticipate a further slowdown to 1.1% growth in 2026. These figures remain below the growth rates observed for Britain for much of the 2010s.
Consumer Spending: A Key Driver for Future Growth
Ana Andrade and Dan Hanson, economists at Bloomberg Economics, highlighted the primary economic uncertainties. They stated, "The key question is whether consumers are now more willing to spend." The pair forecasts quarterly growth of approximately 0.3% for the remainder of 2026, though they cautioned that this projection might be "too optimistic, particularly in the context of a cooling labor market."
The 0.3% GDP growth recorded in November surpassed expectations. However, a significant portion of this expansion was attributed to the recovery in industrial output following the disruption of Jaguar Land Rover's operations due to a cyberattack. These recent figures raise questions about the underlying strength of the economy. The boost derived from the Jaguar Land Rover situation is expected to diminish, and the full impact of Chancellor Rachel Reeves' budget, which included tax increases totaling £26 billion, remains uncertain.
Kallum Pickering, chief economist at Peel Hunt, provided his perspective: "While momentum clearly weakened in the second half of the year as households and businesses turned cautious amid worries over further tax increases, economic activity seems to have been less soft than surveys and anecdotes from businesses had indicated."
The government now faces the dual challenge of sustaining growth momentum while navigating a cautious consumer base and a softening labor market.