Nomura’s George Buckley, notes that UK GDP ended 2025 weakly, with quarterly growth of just 0.1%. Consumer spending and industrial output have underperformed peers, but the bank, the BoE and consensus expect a recovery in 2026 and beyond. Nomura highlights BoE forecasts that rely heavily on a lower saving ratio to sustain growth.

BoE recovery view hinges on savings

"Expectations are generally for an improvement in economic growth in 2026 – recent PMI outturns would support that case if they persist, though the relationship between the PMIs and GDP growth in the UK is far from perfect (we find out more next week in the February surveys)."

"Looking ahead the Bank sees economic growth averaging 0.28% q-o-q in 2026 before rising to 0.44% in 2027 and 0.47% in 2028."

"Much of this is predicated on its view of a fall in the saving ratio (to about 8% in 2028 from 10% in 2025), which would be required for consumption to support growth, bearing in mind the Bank’s central case of sub-1% annual real post-tax labour income growth."

"This is a key risk to the Bank’s forecasts, and in its MPR a downside scenario is that the saving ratio remains elevated due to household risk aversion."

"Even in the MPR’s optimistic central case, the Bank sees the negative output gap getting wider this year and remaining negative throughout the forecast period – which supports its view of inflation being at or below target from the second half of this year all the way through its forecast horizon."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)