A Turning Point for Confidence? Why 2026 Feels Different to 2025

Following the latest Lloyds Banking Group Markets Matter economics update, there’s a noticeable shift in tone when it comes to the UK and global economic outlook. While no one can predict the future with certainty, the contrast with this time last year is striking.

From Consolidation to Growth

In 2025, the prevailing narrative was one of caution. Businesses were focused on consolidation, preserving cash, and delaying major decisions amid economic uncertainty. Fast forward to 2026, and the picture is beginning to change.

There is growing evidence that this year will be characterised not just by stability, but by investment in growth. Confidence across UK industry has rebounded, with seven sectors now showing increased signs of productivity - the strongest position since summer 2024.

This is starting to translate into real-world behaviour. Order books are strengthening, and businesses are increasingly comfortable making larger capital investments; often one of the clearest indicators that activity is set to accelerate.

A More Sustainable Recovery?

Recent years have seen false starts. Early signs of recovery in both 2024 and 2025 ultimately lost momentum. What feels different now is the underlying resilience. The current recovery appears broader-based and more durable, with similar trends emerging not just in the UK, but across Europe. This alignment across regions adds weight to the argument that the improvement may be more sustainable than previous cycles.

The Macro Backdrop

Several macroeconomic factors are supporting this improving outlook:

• Inflation is easing, with UK headline inflation now at 3%, down from 3.4% in December 2025

• The Bank of England is currently pricing in two interest rate cuts this year

• A target of 2% inflation remains in focus, although its sustainability will depend on how the year unfolds

• Interest rates around 3% are increasingly viewed as the new “neutral”

• The labour market is showing positive signs from an inflation perspective, particularly with private sector wage growth moderating

• A period of relative sterling strength is also providing some stability

Globally, the picture is similarly constructive. The US economy continues to outperform expectations, with growth remaining above trend, driven in large part by sustained investment in artificial intelligence.

While trade policy developments, including tariffs introduced under Donald Trump, have weighed on consumer confidence, they have also contributed to a more resilient economic backdrop overall.

A Note of Caution: Geopolitical Risk

Despite the improving outlook, it is important to recognise that risks remain, particularly on the geopolitical front.

The recent escalation of conflict in the Gulf is a reminder of how quickly external shocks can influence global markets. Heightened tensions in the region have the potential to impact energy prices, supply chains, and overall market stability, all of which could feed back into inflation and growth expectations.

While it is too early to fully assess the long-term implications, this serves as a timely reminder that the current optimism should be balanced with continued vigilance.

Confidence Returning and Turning Into Action

Perhaps the most telling shift is behavioural. Across the UK, businesses are beginning to revisit and reactivate investment plans that were paused during 2025. This shift from caution to action is often the clearest signal that confidence is returning in a meaningful way. Importantly, this is not just optimism in sentiment, it is optimism supported by improving fundamentals.

A Measured Optimism

It would be premature to declare a clear runway ahead. Risks remain, both domestically and globally, and economic conditions can shift quickly. However, compared to the outlook projected in 2025, the environment today feels more stable, more confident, and more opportunity-driven.

At Chalk Hill Group, this is something we are seeing reflected in conversations with clients - a growing willingness to look forward, plan strategically, and invest for the future. No one can see around corners, but for the first time in a while, the direction of travel feels notably more positive; even if it requires a careful eye on the risks that remain.