Inside Economy Q1 2026

Some key takeaways of Christian Spence's economic analysis of Q1 2026:

Economic growth: UK growth reached approximately 1.25% in 2025, driven primarily by high-value professional services and information communications sectors. While growth has been slowing through the past year, it's becoming more broad-based across sectors - a positive sign for economic resilience. 

Labour Market: The labour market is loosening, with unemployment expected to rise modestly through 2026. Consumer-facing sectors, particularly accommodation and food services, have seen the weakest recruitment. Encouragingly, people who left the workforce due to illness during COVID are beginning to re-enter, creating a larger candidate pool for employers. 

Wage pressures easing: Whole economy wage settlements have fallen to around 4%, down significantly from recent years. Combined with fewer vacancies and more job seekers, wage pressure should continue to soften throughout 2026. 

Inflation outlook: Inflation is falling rapidly and expected to approach the Bank of England's 2% target by mid-2026, though it remains slightly elevated in consumer-facing sectors. 

Household spending: Despite rising real incomes in 2025, consumer spending remains weak. Budget measures are expected to further constrain household spending throughout 2026, creating one of the biggest risks to economic growth. 

Interest rates: The Bank of England is likely to implement one to two rate cuts in 2026, though long-term five-year rates are expected to settle around 4%. 

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