UK growth set to stall again in 2026: what this means for your business

The latest forecasts suggest the UK economy is heading for another subdued year in 2026, with growth expected to slip below 1%. The downgrade landed just weeks before the Chancellor’s Budget and reflects a wider reassessment of where the economy can realistically grow from here.

The Office for Budget Responsibility is expected to lower its estimate of the UK’s potential growth after revisiting productivity assumptions. A reduction of around 0.3 percentage points in annual productivity gains may not sound dramatic, but over the life of the current parliament, it could translate into roughly £21bn less in projected tax revenues. That matters because it shapes future fiscal decisions and the pressure on public finances.

This year’s headline growth figures were helped by a strong rebound in business investment, which rose by 3.7%. The problem is that this looks unlikely to continue. Investment growth is forecast to slow sharply to around 0.8% in 2026, removing one of the main supports for output.

The labour market is also cooling. Unemployment is expected to peak at around 5% next summer, and as conditions soften, pay growth is forecast to ease back from recent highs to around 3.5% by the end of 2025 and closer to 3% by mid-2026. That may reduce some cost pressure, but it also points to a more cautious hiring environment.

Business confidence reflects this mood. The Institute of Directors reports that optimism among business leaders has fallen to record lows. Many small and medium-sized firms say costs have risen faster than revenues over the past year. While some of those pressures are beginning to ease, they are still weighing on decisions around hiring, investment and growth.

There are some more optimistic forecasts starting to emerge, but the sensible planning assumption for now is that 2026 will remain challenging. Growth is likely to be modest, investment tight, and the labour market softer than we’ve been used to.

What can businesses do?

Periods like this aren’t about dramatic moves; they’re about control and clarity.

That means:

• keeping a close eye on cashflow and forecasts
• understanding where margins are really being made (and lost)
• being deliberate about investment decisions
• stress-testing plans so there are fewer surprises

You can’t control the wider economy, but you can control how well you understand your numbers and how early you act when conditions change.

If you’d like to talk through what this outlook means for your business, and how to plan sensibly for the year ahead, get in touch. A steady plan beats guesswork every time.