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UK GDP expected to grow 1.4% in 2026: Goldman Sachs Research
They predict that the labour market will keep weakening, but also anticipate a boost to the economy from a significant cooling of inflation and further rate cuts from the Bank of England (BoE).
Goldman Sachs Research expects ‘another mixed year’ for the UK economy, which is expected to grow at 1.4 per cent in 2026—up from around 1 per cent in 2025.
It expects the unemployment rate to rise to 5.3 per cent by March, and then stabilising.
Consumption is expected to grow at 1.3 per cent in 2026 versus 0.7 per cent in 2025.
The fiscal position looks less vulnerable than some other European nations.
The UK labour market weakened significantly in 2025 as slow economic growth and the increase in national insurance contributions weighed on employment. A recent rise in layoffs points to ‘further labour market softening ahead’, according to Moberly and Stehn.
Goldman Sachs Research expects the unemployment rate to rise to 5.3 per cent by March. But as growth picks up towards potential, it sees the unemployment rate stabilising for the remainder of this year, the report says.
Given rising slack in the job market, lower headline inflation, and a smaller increase in the national living wage, the company’s economists expect wage growth to normalise this year. Private sector regular pay growth slowed to 3.8 per cent from around 6 per cent over the last 12 months, and the team forecasts further cooling to 3.1 per cent by the end of 2026.
Consumer spending in the UK is low, and the household savings rate is elevated. “Real disposable income growth is likely to remain weak in coming quarters given wage growth moderation, elevated mortgage rates, and a larger fiscal drag on household incomes,” Moberly and Stehn write.
The team’s models suggest that the savings rate will likely decline this year as interest rates fall and consumption catches up with recent increases in real inflation-adjusted incomes.
Consumption is expected to grow at 1.3 per cent in 2026 versus 0.7 per cent last year.
The team anticipates further progress on inflation in the coming months given unwinding base effects. Goldman Sachs Research projects headline inflation to decelerate to 2.1 per cent in the second quarter this year.
The fiscal trajectory, political risk, and efforts to boost economic growth are likely to be key areas of focus this year, according to the company.
“Our analysis suggests that the UK’s fiscal position looks less vulnerable than some other European countries, notably France,” Moberly and Stehn add.
Fibre2Fashion News Desk (DS)