Press & Policy

A run of new data this week gives one of the clearest views so far of where the UK economy actually stands. The short version: things have stopped getting worse, but they’re not convincingly getting better either.

There are some positive signs. Growth has returned with GDP edging up in early 2026 and helping the UK avoid slipping into recession. Inflation has also come down from its recent peak, sitting at around 2.8% in April. That’s a meaningful improvement, even if it’s still above the Bank of England’s 2% target.

But once you look beyond those headline numbers, the picture becomes less reassuring.

The labour market, for example, is clearly losing momentum. Unemployment has climbed to around 5%, and vacancies are continuing to fall as businesses pull back on hiring. Pay growth, meanwhile, still isn’t keeping up in real terms for many workers, which means the squeeze from the past couple of years hasn’t really gone away.

Business data tells a similar story. The latest Business Insights and Conditions Survey from the ONS highlighted reports that more than a quarter of trading firms reported falling turnover in April, and uncertainty remains the most common concern. Costs, particularly energy and labour, are still rising for many firms, and a sizeable number expect to pass at least some of those increases on through higher prices.

Put simply, this doesn’t feel like a recovery. It feels like an economy that has stabilised at a fairly low level.

Inflation may be easing, but interest rates are still high and are likely to stay that way until there’s more confidence that price pressures won’t come back. That “higher for longer” outlook continues to weigh on borrowing, investment and demand. For many businesses and households, the drag from previous rate rises is still working its way through.

For firms on the ground, the impact is patchy pretty immediate. Demand is patchy, margins are under pressure, and more cautious decision-making has become more cautious. While a cooling labour market might take some heat out of recruitment difficulties, it also points to a broader slowdown in activity – which is hardly a sign of a strong rebound.

On top of that, the global backdrop isn’t helping. Energy markets remain volatile, supply chains are still vulnerable to disruption, and geopolitical tensions haven’t gone away. Even as domestic conditions begin to stabilise, external shocks are still shaping the outlook in ways businesses can’t easily control.

There is, however, a sense that many businesses are ready to move. Investment, innovation and growth are all on the agenda. The problem is that confidence hasn’t caught up. Without a more stable, pro-investment environment, and faster progress on infrastructure and competitiveness, that ambition risks staying on hold.

As set out in Backing Scotland’s Businesses: A Plan for Growth, firms are looking for a more stable, predictable environment, one that supports long-term investment, accelerates infrastructure delivery, and strengthens competitiveness. Without those conditions in place, it’s difficult for that underlying ambition to translate into real activity.

So the key question over the coming months is a simple one: can this period of stabilisation turn into something more durable?

That will depend on a few things going right at once. Inflation needs to keep falling without any nasty surprises, which would open the door to interest rate cuts. Business confidence has to pick up. And globally, conditions need to be steady enough to avoid another wave of disruption.

Until then, the UK economy looks stuck in a holding pattern. It’s not in decline, but not yet on a convincing path to recovery.