A Muddle-Through UK as AI and Policy Shape 2026

Authored by NatWest’s economics team, this early-2026 outlook surveys UK, US, and European prospects as growth stabilises but momentum remains uneven. 

• UK GDP growth is expected to hover near 1%, with cautious consumers, a sluggish labour market, and easing inflation limiting upside despite firmer public spending.

• Inflation is forecast to return close to target by spring, while interest rates approach neutral, constraining further monetary stimulus.

• The US retains relative strength on AI-driven investment and fiscal support, while Europe continues to lag amid weak demand and slower digital adoption.

Can modest growth endure if AI reshapes productivity but not confidence?