This week’s blog is shaped around Pantheon Macroeconomics’ UK Webinar (22 Jan 2026) — full credit to their team for one of the clearest, most evidence-based reads of the UK macro backdrop I’ve seen in a while. 

The headline is simple:

Pantheon’s base case is one final Bank Rate cut in April. Then the MPC slows down and signals the end of the cycle. 

As context, the UK Bank Rate is currently 3.75%, following the 0.25% cut in December 2025.

But here’s the genuinely interesting — and contrarian — part buried in Pantheon’s analysis:

Another cut is likely to take policy to neutral or slightly loose, so risks then lean toward hikes in 2027. 

That’s not the mainstream view. Most people are still anchored to the idea that “rates drift lower over time”. Pantheon argues that we might be closer to the end than the market thinks — and that the next move after April could be up, not down.

Before I unpack that, here’s what caught my eye this week: how the UK economy has actually started 2026 — plus a couple of sharp observations from commentators that align perfectly with the theme I laid out in my 2026 Predictions blog: execution, evidence, and discipline.

How the UK economy has started 2026 (better than the mood music)

1) Growth: improving momentum, not a boom

The UK isn’t accelerating into a boom, but it’s also no longer stuck at stall speed.

Pantheon’s own forecast table has:

• GDP +0.4% q/q in Q1 2026
• GDP +0.3% q/q in Q2 2026
• 2026 GDP +1.0% y/y  

That’s a classic “soft landing” profile: positive growth, low drama, and critically, not much spare capacity opening up.

2) Inflation: falling towards target… but not defeated

Pantheon’s central inflation path is constructive:

• CPI 3.4% in 2025 → 2.7% in 2026
• CPI 3.1% in Q1 26 → 2.4% in Q2 26  

That’s progress.

But the UK is still dealing with the stubborn engine room: services inflation.

Pantheon’s monitor highlights:

• Services CPI inflation 4.5% in December
• Core CPI 3.2% in December  

So even if headline CPI dips (and it likely does), the MPC will keep watching:

• services pricing power
• wage persistence
• inflation expectations

This is precisely the type of environment where confidence can rise faster than certainty.

3) Wages + jobs: softening, but sticky where it matters

Pantheon’s forecasts show a labour market cooling gradually:

• Unemployment 4.8% (2025) → 5.1% (2026)
• Employment growth 1.6% (2025) → 0.6% (2026)  

And crucially:

• Wage growth (ex-bonus) 4.9% (2025) → 3.8% (2026)  

Directionally, that’s what the MPC wants.

But the level remains high enough to keep services inflation sticky, which is why the MPC can likely cut once more, but is unlikely to cut aggressively.

The most interesting UK consumer insight I saw this week: confidence is split by age

One of the best pieces of commentary I saw this week came from Kallum Pickering (Chief Economist, Peel Hunt), looking at why UK consumer confidence is diverging between younger and older cohorts.

His framing is simple and compelling:

• Older cohorts (50+): confidence is increasingly driven by net wealth (particularly housing wealth). With real house prices not keeping up with inflation, this helps explain why confidence among over-50s remains depressed.
• Younger cohorts: confidence is driven more by real incomes, and real wage growth has been relatively decent over the past few years — hence confidence improving for under-50s.

Why this matters in 2026

It suggests the consumer recovery won’t be uniform.

You can get a UK economy where:

• confidence improves
• spending improves
• demand stabilises

…but the benefits show up more strongly in specific cohorts, and much less in others.

That’s a valuable lens for forecasting consumer behaviour in 2026 (including big-ticket categories like automotive and mobility).

NEW: The trade wars dynamic (the external shock risk that doesn’t need UK weakness)

One more thing I’m watching closely: trade wars, round two.

A strong editorial in Investors’ Chronicle this week (Dan Jones, Deputy Editor) made a point that feels underpriced in many UK outlooks:

Even if the UK domestic picture is improving, global politics can still throw sand in the gears — particularly through tariff policy and trade escalation.

The key takeaway for me is this:

✅ The UK economy can be “fine” domestically

❌ but the external environment can still hit growth via confidence, costs, and risk premia

Why this matters for the UK specifically

Trade friction tends to show up through:

• weaker business confidence and delayed capex
• higher input costs (even if inflation impact is “micro”, it’s still real at the firm level)
• tighter financial conditions (risk-off moves, FX volatility, higher term premia)

And critically, it reinforces a central 2026 theme:

Macro volatility is increasingly geopolitical, not purely economic.

So while “one more cut” might be the base case, global disruption is the kind of factor that can quickly force central banks into awkward trade-offs.

What this means in practice (and why it ties to my 2026 Predictions)

My 2026 Predictions blog argued the year would reward:

• execution
• evidence
• discipline

—not “macro rescue”.

The data this week supports exactly that:

✅ Growth is positive

✅ Inflation is falling

✅ Confidence is improving

❌ Services inflation is sticky

❌ wage growth remains high vs a “true 2% world”

❌ geopolitics can still inject volatility

❌ Fiscal pressures remain a background constraint

So the opportunity in 2026 is real — but it is not frictionless.

Operator translation (automotive, SaaS, AI)

Base case: stable but not generous

• slightly lower rates vs 2024/25
• improving confidence at the margin
• cost structures still higher than pre-2022
• no return to “easy money”

Winners will be execution-first

• margin discipline (not “we’ll fix it with growth”)
• conversion + retention obsession
• AI deployed where ROI is provable (time saved, cost out, conversion up)
• planning for “higher neutral rates” (no dependence on refinancing miracles)
• resilience planning for geopolitical volatility (supply chain, FX, cost shocks)

Losers will be narrative-led

• “rate cuts = multiples return” assumptions
• unit economics hidden behind storytelling
• cash burn justified by future capital easing

This is why 2026 is a separation year: a steady economy removes excuses.

Final Thought

Pantheon’s view is sharp and balanced:

• The MPC can likely cut once more (April)
• inflation should fall
• activity is improving
• but services inflation remains sticky
• and the UK is not heading into recession  

So yes — conditions can improve from here.

But the improvement is modest, not transformational.

And the genuinely interesting possibility is that by 2027, the conversation isn’t:

“How far can rates fall?”

…but:

“Does the MPC need to hike again?”

That would shock consensus. But it’s consistent with a world where neutral rates are structurally higher, inflation is stickier, and central banks have less room to ease than markets expect.

2026 still belongs to the teams that can execute, prove value, and stay disciplined.

Have a great week!