The UK economy is closer to stall speed than the US

10th January 2026

Where the US has moved from "hot" to “cooling,” the UK has moved from fragile recovery to near-stagnation.

UK GDP growth has been weak to flat, with repeated quarters hovering around zero.

Business investment remains subdued.

Productivity growth is effectively flat.

The labour market no longer provides momentum. Employment growth has stalled, vacancies have fallen sharply, and inactivity has risen — particularly due to long-term sickness.

Translation:
The UK is not overheating and then cooling. It never really regained strong forward momentum after the pandemic.

High interest rates are biting harder in the UK

Monetary tightening has had a more painful and immediate effect in the UK than in the US.

Reasons:

A much higher share of households are exposed to variable or frequently resetting mortgages.

Household debt is more sensitive to rate changes.

Housing costs feed faster into consumer stress.

As a result:

Consumption has weakened more sharply.

Housing activity has slowed significantly.

Small businesses are under heavier financing pressure.

The Bank of England faces a tougher trade-off than the Fed: inflation remains sticky, but growth is already anaemic.

The labour market looks weaker beneath the surface

Headline unemployment in the UK remains relatively low — but this is misleading.

Hidden weakness is more severe than in the US:

Economic inactivity has risen markedly, especially due to illness.

Vacancies have fallen faster than employment.

Youth unemployment has increased disproportionately.

Job-to-job moves are down, limiting wage progression.

Unlike the US “low-hire, low-fire” equilibrium, the UK risks sliding into low-hire, creeping-fire if conditions worsen.

Consumers are more constrained than in the US

UK households are under greater real-income pressure:

Real wages only recently returned to pre-inflation levels.

Housing, energy, and food costs remain structurally high.

Savings buffers are thinner than in the US.

This shows up as:

Weak retail sales volumes

High financial pessimism in surveys

Increased reliance on credit for essentials

Where US consumers are cautious, UK consumers are squeezed.

This is a more fragile equilibrium than in the US

The UK economy is in a low-growth, low-resilience equilibrium:

Little productivity growth

Limited fiscal space

High sensitivity to rate changes

A labour market losing participation rather than reallocating efficiently

Small shocks — higher energy prices, financial market volatility, or policy errors — could push the economy into contraction more easily than in the US.

What this means overall (UK vs US)

What it does NOT mean
The UK economy is collapsing
Mass unemployment is imminent
The labour market has failed

What it does mean

The UK has less momentum and less buffer than the US.
Monetary tightening has done more damage to growth
Labour market weakness is more structural than cyclical.
The economy is closer to stagnation than soft landing.

Using the same parameters, the UK stands one step behind the US on the slowdown curve:

The US is cooling from strength.

The UK is cooling from weakness.

Both economies are fragile, but the UK's fragility is deeper and more structural, while the US’s is more cyclical and policy-driven.