UK GDP ended 2025 with quarterly growth of just 0.1%. Consumer spending and industrial output lagged other countries. Still, forecasts from Nomura, the Bank of England, and the wider consensus expect stronger growth from 2026 onwards. Recent PMI readings point to firmer activity if they hold up. However, the link between PMIs and UK GDP is not exact. More clarity should come from next week’s February surveys.

Bank Of England Growth Assumptions

The Bank of England expects average growth of 0.28% quarter-on-quarter in 2026. It then sees growth rising to 0.44% in 2027 and 0.47% in 2028. These forecasts rely partly on the saving ratio falling from about 10% in 2025 to around 8% by 2028. Lower savings would support consumption and help lift growth. This matters because the Bank’s central view is that annual real post-tax labour income growth will stay below 1%. In a downside scenario in the Bank’s Monetary Policy Report, the saving ratio stays high because households remain cautious. Even in its central forecast, the Bank expects the output gap to widen this year and stay negative through the forecast period. That supports its view that inflation will be at or below target from the second half of this year and across the forecast horizon. The UK economy finished 2025 in a weak place, with barely any growth. Forecasts now point to a recovery. Recent business surveys support that view, including the January PMI, which rose to a seven-month high of 53.8. But the basis for this recovery still looks fragile.

Market Positioning Implications

The Bank of England’s growth outlook depends on one key assumption: households will save less. Recent ONS data puts the saving ratio near 10% in 2025, and the Bank expects it to fall towards 8%. But in the post-pandemic period of 2022–2023, households stayed cautious for a long time. That history suggests the drop in savings is a real risk to the forecast. For interest rate traders, this creates room to position for a weaker outcome. If consumer confidence fades and savings stay high, the Bank could face pressure to cut rates later this year to support growth. One way to express this view is through short-sterling or SONIA futures that would benefit if expected interest rates fall. This uncertainty also argues for a more defensive stance in equities. The FTSE 250 is more exposed to the domestic UK economy and could be vulnerable if consumer spending fails to improve. Buying put options on the index can work as a hedge, or as a directional trade against the Bank’s optimistic scenario. Sterling also looks exposed if the economy underperforms. If growth does not accelerate, the pound could weaken against the dollar and the euro. Options can express this view—for example, buying GBP/USD puts can offer a relatively low-cost way to benefit if upcoming data signals continued weakness. The near-term focus is next week’s February PMI data. This should be the first major test of whether early-year optimism is holding up. A weak print would challenge the recovery story and strengthen the case for positioning defensively. Create your live VT Markets account and start trading now.

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