BofA Securities warned UK household consumption will grow just 1.2% in 2026, significantly below pre-COVID levels despite rising real incomes, as slowing wage growth and elevated savings rates dampen spending. 1.2% growth is forecast against a backdrop where real disposable income rises only 0.6% year-on-year, down from 1.1% in 2025. Energy prices at sustained levels of £60 per barrel and 140 pence per therm could push inflation 35bps higher than BofA's 2.2% forecast, delaying the Bank of England's 2% target by a year. 700,000 households are projected to face higher mortgage rates in 2026 when renewing fixed deals, up from 600,000 in 2025. A weakening labor market poses the starkest risk, potentially raising unemployment to 5.5% and increasing savings rates by ~1 percentage point. Behavioral shifts also threaten spending, with 53% of respondents still cutting back due to inflation fears despite falling inflation expectations. Income inequality exacerbates the outlook, as lower earners face faster inflation in essentials.

BofA remains cautious on UK retail equities, expecting price cuts of 1.3% and 1.4% as retailers absorb foreign exchange pressures rather than boost margins.