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UK Economic Growth Forecast to Slow in 2026 Amid Rising Unemployment

London, UK - The UK economy is expected to cool in 2026 as weak consumer sentiment and a slowing job market weigh on growth, according to a new forecast from KPMG.

The accounting firm predicts UK GDP will rise by just 1.0% in 2026, down from 1.4% in 2025, with the unemployment rate set to climb to 5.2% next year. This paints a weaker picture than the government's own forecasts, which last week projected growth of 1.4% in 2026.

"The outlook for growth in 2026 is subdued, reflecting the impact of a cooling labour market and weak household spending," said Yael Selfin, chief economist at KPMG UK. While there are "pockets of strength" in data infrastructure and green energy investment, the medium-term outlook could improve further if planning reforms unlock more housing supply and reduce uncertainty for investors.

Wage growth is expected to slow towards 3% by mid-2026, a trend that may encourage the Bank of England to lower interest rates from their current 14-year high of 3%. Consumer spending is likely to remain subdued as households grapple with the ongoing cost-of-living crisis.

The bleak economic forecasts come as a £5.3 billion infrastructure merger deal has collapsed amid the broader market turbulence. FTSE 250-listed John Laing Group confirmed that takeover talks with a consortium led by private equity firm KKR have been terminated.

John Laing, which invests in public-private partnership projects, said the offer no longer "properly reflected the value of the company" given the "significantly changed macroeconomic environment." The failed deal underscores the challenges facing dealmakers as rising interest rates and recession fears weigh on M&A activity.

Industry sources said the collapse of the John Laing transaction highlights how the uncertain economic outlook is making it harder for buyers and sellers to agree on valuations. Investors are becoming more cautious, with a focus on high-quality assets that can withstand a downturn.

With the UK already on the brink of recession, the latest economic forecasts will add to pressure on the government to take further action to support growth and ease the burden on households. The Bank of England, meanwhile, must strike a delicate balance between taming inflation and avoiding an overly severe economic slump.