DAVY VIEW

2026 has been characterised by upside surprises to the UK’s economic growth, and there is possible further scope for outperformance ahead thanks to a better productivity backdrop. Despite this, the UK’s public finances are set to remain in a precarious and fragile state. Reduced fiscal headroom, largely a result of higher borrowing costs and the Iran war, means very limited capacity to avoid larger fiscal tightening over the coming years.