RSM UK 2026 ECONOMIC OUTLOOK
One goal behind, but UK economy still in the match
Brace yourselves, our summer outlook probably isn’t as bad as England’s chances of winning the World Cup, but it still doesn’t make for the most pleasant reading.
The Iran conflict means inflation will be higher, the jobs market weaker and growth slower than we previously thought, even if the latest deal holds. The silver lining is that the economy has shown remarkable resilience over the past two years, growing by an average of around 1.2% despite tariffs, elections and major tax rises. Most of the early signs suggest this resilience will continue with growth slowing, but not collapsing into recession.
That said, this outlook comes with a much bigger health warning than usual. The trajectory will be heavily determined by what happens in Iran and the impact on energy prices. Our base case for the UK economy is yet another dose of mild ‘stagflation’, especially if the June peace deal holds, but the risks are undeniably large.
If geopolitics weren’t enough to contend with, there is now the added uncertainty of domestic politics. After months of speculation, a change in leadership is now confirmed. But the prospect a new more spendthrift Prime Minister has raised the likelihood of higher taxes and greater borrowing, which would push up gilt yields and add to economic uncertainty.
Our prediction is for growth of 1.0% this year, slower than last year, with inflation trending back up towards a peak of 3.5%. But most of the data since the start of the war suggests that while the economy is slowing, activity isn’t collapsing.
