UBS forecasts a UK economic rebound in 2026 after sluggish growth in the second half of 2025. The bank expects GDP to accelerate from 0.1% quarterly growth in Q3 and Q4 2025 to 0.3% in Q1-26 and 0.4% in Q2-26. This 1.1% overall growth projection for 2026 reflects easing Budget-related uncertainty that previously weighed on the economy.

Inflation has fallen to 3.0% year-on-year and is expected to drop to 2% by April 2026, averaging 2% for the year as energy bills decrease. The Bank of England will likely respond with two 25 basis point rate cuts in March and June, reducing the Bank Rate to 3.25%. Despite this positive outlook, UBS warns that global trade headwinds and domestic political issues remain challenges.

Political uncertainty continues to shadow the economic recovery, with UBS noting a potential Labour leadership challenge despite Prime Minister Starmer's recent backing. The government's Spring Fiscal Statement on March 3 is unlikely to introduce major policy changes, though fiscal headroom will be lower than the previous £22 billion estimate. These factors create a cautiously optimistic economic outlook for investors.