25th April 2026
At the heart of the report is a simple but important tension: the UK economy is not in crisis, but nor is it convincingly recovering. Growth forecasts for the near term have been revised down across the board.
Major institutions, including the IMF and OECD, have cut their expectations for UK growth this year, reflecting a more subdued outlook than previously hoped. This reflects a familiar pattern in the British economy—modest expansions that repeatedly fail to gather sustained momentum.
A major driver of this uncertainty is the global backdrop, particularly geopolitical instability. The report highlights how external shocks most notably the ongoing tensions in the Middle East—are feeding directly into the UK economy through higher energy prices and renewed inflationary pressure. These shocks do not just affect household bills; they also threaten the government’s fiscal position. In more severe scenarios, the Resolution Foundation suggests that a significant portion of the Chancellor’s fiscal “headroom” could be wiped out, leaving far less room for policy manoeuvre.
Inflation itself remains an unsettled story. While earlier expectations pointed to a steady decline, more recent data suggests a bumpier path, with price pressures persisting longer than anticipated. This complicates the task facing policymakers, particularly the Bank of England, as they attempt to balance the need to support growth with the imperative to keep inflation under control.
Yet the report is not entirely pessimistic. In the short term, living standards are expected to improve modestly, with lower-income households seeing relatively stronger gains. This is due to a combination of rising wages and policy changes to benefits.
However, this improvement is described as something of a one-off. The medium-term outlook is far less encouraging, with the UK’s longstanding problems—weak productivity, sluggish wage growth, and regional inequality—continuing to weigh heavily on prospects.
This disconnect between short-term gains and long-term stagnation is a central theme of the report. Even where incomes rise, they do so from a low base, following years of weak growth. Over the longer horizon, households are unlikely to feel substantially better off, particularly once rising housing costs and frozen tax thresholds are taken into account.
Another concern is the labour market. While employment has held up better than expected in recent years, there are signs of strain beneath the surface. Some analysts warn that higher interest rates, rising costs, and structural changes in the economy could lead to increased business failures—particularly among less productive firms. This could, in turn, push unemployment higher in the short term, even if it improves productivity over time.
For policymakers, the report presents a difficult balancing act. On the one hand, there is pressure to support households facing cost-of-living challenges, especially if energy prices rise again. On the other, there is limited fiscal space to do so without breaching fiscal rules or increasing borrowing.
The Resolution Foundation argues that future interventions may need to be more targeted focusing support on those most in need rather than repeating the broad, expensive measures seen during previous energy crises.
Ultimately, the Q2 2026 outlook paints a picture of an economy caught between recovery and stagnation. Britain is no longer dealing with the acute shocks of recent years, but neither has it escaped the deeper structural issues that have constrained growth for over a decade.
If there is a single takeaway, it is this. The UK’s economic challenges are no longer primarily cyclical, but structural. Without stronger productivity growth, more effective policy, and a clearer long-term strategy, the risk is that periods of modest improvement will continue to be followed by renewed disappointment.
Read the full report HERE