Introduction: UK economic growth forecast to slow next year as unemployment rises
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
With the budget over, bar the inquest, attention is again turning to the health of the UK economy.
We’ll get a healthcheck on Britain’s manufacturing sector this morning, and an assessment of the mortgage and credit market but first, there are a flurry of economic surveys to digest.
KPMG have predicted that the UK economy will cool in 2026 as weak consumer sentiment and a slowing job market weighs on growth. They predict UK GDP will rise by 1.0% in 2026, down from 1.4% in 2025, with unemployment rising next year too.
That’s a weaker forecast than the Office for Budget Responsibility – which predicted last week that growth would fall to 1.4% in 2026 from 1.5% this year.
KPMG UK’s latest Economic Outlook also predicts the unemployment rate will rise to 5.2% in 2026, reflecting slower hiring, increasing participation and job cuts as companies look to automate some job fnctions.
Wage growth is expected to slow, falling towards 3% by mid-2026 – something that might encourage the Bank of England to lower interest rates.
Yael Selfin, chief economist at KPMG UK, said:
“The outlook for growth in 2026 is subdued, reflecting the impact of a cooling labour market and weak household spending. But there are pockets of strength emerging in the form of data infrastructure and green energy investment. The medium-term picture could improve further if planning reforms unlock housing delivery and uncertainty reduces for investors.
“With ongoing headwinds continuing to weigh on household activity, consumer spending is likely to remain subdued over the coming year. Although the Autumn Budget avoided front-loaded tax hikes, the decision to maintain frozen tax thresholds until 2031 means that fiscal drag will persist.”
The CBI also have downbeat news – they report that business sentiment and activity dropped further across the services sector in last three months.
The CBI’s latest Service Sector Survey found that business volumes dropped again, marking over a year of declines. Meanwhile, average selling prices were unchanged despite cost growth remaining elevated.
Looking ahead, service sector firms expect volumes to keep falling over the next quarter.
And to round off the gloom, the IoD Directors’ Economic Confidence Index has remained at a record low.
The index was unchanged at -73 in November, matching October’s reading, but did inch up to -72 immediately after the budget.
The agenda
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9am GMT: Eurozone manufacturing PMI report
-
9.30am GMT: UK consumer credit and mortgage approvals
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9.30am GMT: UK manufacturing PMI report
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3pm GMT: US manufacturing PMI report
Key events
£5bn infrastructure merger collapses after investor revolt
Just in: A deal to create the largest listed UK infrastructure investment company has collapsed.
The propsed combination of two UK infrastructure investment companies, HICL Infrastructure and the Renewables Infrastructure Group Limited (TRIG), would have created a new investment trust worth more than £5bn. However, it has failed to win enough support following a revolt by investors in HICL, which had proposed the merger with fellow FTSE 250 member, TRIG.
In a statement this morning, the two companies say the proposed combination will not proceed, adding:
Both Boards remain convinced of the strategic rationale for the combination. However, following broad engagement with shareholders, the HICL Board determined that it cannot progress the transaction without a substantial majority of support from its own investors.
HICL’s investments are focused on infrastructure in hospitals, schools and transport, while Trig invests renewable energy sources such as wind farms, solar and battery plants.
A group of HICL investors had opposed the deal, claiming it had been priced and structured to favour Trig.
Trig’s board say they regret that investors won’t get to vote on the deal.
Richard Morse, chair of TRIG, says:
“Our focus now returns to delivering TRIG’s attractive standalone strategy. TRIG is a well-established platform with high quality assets, a competitive pipeline of opportunities, and deep renewables and energy storage expertise.
We are uniquely placed to capitalise on the demand growth for low carbon, reliable power and to capture the commercial opportunities as economies across the UK and Europe electrify and decarbonise. Doing so will allow us to deliver sustainable value and growth for our shareholders, with whom we will continue to engage on the path ahead.”
Introduction: UK economic growth forecast to slow next year as unemployment rises
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
With the budget over, bar the inquest, attention is again turning to the health of the UK economy.
We’ll get a healthcheck on Britain’s manufacturing sector this morning, and an assessment of the mortgage and credit market but first, there are a flurry of economic surveys to digest.
KPMG have predicted that the UK economy will cool in 2026 as weak consumer sentiment and a slowing job market weighs on growth. They predict UK GDP will rise by 1.0% in 2026, down from 1.4% in 2025, with unemployment rising next year too.
That’s a weaker forecast than the Office for Budget Responsibility – which predicted last week that growth would fall to 1.4% in 2026 from 1.5% this year.
KPMG UK’s latest Economic Outlook also predicts the unemployment rate will rise to 5.2% in 2026, reflecting slower hiring, increasing participation and job cuts as companies look to automate some job fnctions.
Wage growth is expected to slow, falling towards 3% by mid-2026 – something that might encourage the Bank of England to lower interest rates.
Yael Selfin, chief economist at KPMG UK, said:
“The outlook for growth in 2026 is subdued, reflecting the impact of a cooling labour market and weak household spending. But there are pockets of strength emerging in the form of data infrastructure and green energy investment. The medium-term picture could improve further if planning reforms unlock housing delivery and uncertainty reduces for investors.
“With ongoing headwinds continuing to weigh on household activity, consumer spending is likely to remain subdued over the coming year. Although the Autumn Budget avoided front-loaded tax hikes, the decision to maintain frozen tax thresholds until 2031 means that fiscal drag will persist.”
The CBI also have downbeat news – they report that business sentiment and activity dropped further across the services sector in last three months.
The CBI’s latest Service Sector Survey found that business volumes dropped again, marking over a year of declines. Meanwhile, average selling prices were unchanged despite cost growth remaining elevated.
Looking ahead, service sector firms expect volumes to keep falling over the next quarter.
And to round off the gloom, the IoD Directors’ Economic Confidence Index has remained at a record low.
The index was unchanged at -73 in November, matching October’s reading, but did inch up to -72 immediately after the budget.
The agenda
-
9am GMT: Eurozone manufacturing PMI report
-
9.30am GMT: UK consumer credit and mortgage approvals
-
9.30am GMT: UK manufacturing PMI report
-
3pm GMT: US manufacturing PMI report
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