1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 73
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
UNITED KINGDOM
Juan Manuel Herrera
Betancourt
Senior Economist,
Investment Strategy
Philippe Cazabon Kauak
Senior Manager,
Investment Strategy
Latest
2025f
2026f
2027f
GDP Growth
0.4%
1.4%
1.1%
1.4%
Inflation
3.2%
3.4%
2.5%
2.2%
Unemployment
5.1%
4.8%
5.1%
4.9%
Budget Bal.
-5.4%
-4.5%
-3.8%
-3.2%
Latest
2025
1-yr fwd
2-yr fwd
3-mo yield
3.9%
3.9%
3.7%
3.8%
10-yr yield
4.5%
4.5%
4.8%
5.0%
Yield curve slope
0.6%
0.6%
1.1%
1.2%
Source: Bloomberg Finance LP, Scotiabank Economics, Scotia Wealth Management. "Latest" values are as at December 31, 2025 and, for data other than bond
yields, pertain to the most recent monthly, quarterly, or annual reading available on this date. GDP and inflation forecasts are based on Scotiabank Economics
forecasts dated December 11, 2025. Remaining forecasts are based on median consensus estimate compiled by Bloomberg | 2025 inflation and unemployment
are based on the average YoY rates for each month of the year. | 2025 yields are as at December 31, 2025. Forward periods are relative to December 31, 2025 and
are based on forward market pricing.
Key conclusions
•
U.K. GDP growth is expected to slow from around 1.4% in 2025 to roughly 1.1% in 2026,
extending a prolonged period of sub potential expansion as fiscal constraints tighten and
private demand remains subdued.
•
Labour market cooling is occurring primarily through attrition rather than widespread
layoffs, gradually increasing slack and easing wage pressures without a sharp rise in
unemployment.
•
Inflation remains sticky in the near term, but underlying pressures are expected to ease
through 2026, with CPI falling from 3.4% in 2025 to around 2.5% this year and
approaching toward BoE’s 2% target by 2027.
•
Elevated deficits, back loaded fiscal consolidation, and limited political capital keep gilt
markets sensitive, while the Bank of England is likely to maintain a cautious, gradual
easing cycle following the December rate cut.
The U.K. economy is entering 2026 with limited momentum, extending a multi year stretch of
below trend growth. After expanding by an estimated 1.4% in 2025, GDP growth is forecast to
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