10 PwC UK economic predictions for 2026: AI to directly add £2bn to GDP, London house prices will flatline, 8% chance England will win World Cup, and more

PwC UK has today released its economic predictions for 2026 covering a diverse range of topics from economic growth and house prices to the World Cup and AI impact. The full predictions report can be seen here.

Barret Kupelian, Chief Economist, PwC UK said: 

“After turmoil comes adaptation. Against the backdrop of the unprecedented shifts in global economic landscape we saw last year, 2026 will be the second act of these changes, namely the year when governments, businesses and households react and adapt.

“The main story in 2026 will not be in the top-line economic numbers. Rather, it will be in the underlying plumbing of the global economy with more barriers in place for the movement of goods and people, which could spillover into other domains, including capital flows and the services trade. Businesses, households and society at large will need to adapt, probably in ways they are not used to.

“But what does this mean for the UK? For next year, on the external front, we are likely to see changes to our relationship with the EU as the Trade and Cooperation Agreement is up for review. On the domestic front, there will be a much stronger focus on levers for domestic growth, including public investment picking up at a record pace and continued pressure to deliver on housebuilding and on building infrastructure faster. And finally, we should expect implementation to matter more, whether that is to drive forward the industrial strategy, skills agenda, or the take-up of artificial intelligence across the economy. In short, 2026 will be the year where we adapt to the changes we witnessed in the past few months.”

2026 UK Economic forecast 

PwC projects that UK GDP will grow by 1.2% in 2026, before picking up to 1.6% in 2027. Inflation is set to peak at 3.4% in 2025 and then ease back towards the Bank of England’s 2% target, falling to 1.9% in 2026 and 1.8% in 2027. The moderation in 2026 inflation reflects slower price growth in both services (2.6% in 2026 compared to 4.8% in 2025) and core goods (0.8% compared to 1.4%). In response, the Bank of England base interest rate is projected to edge down from 3.75% to 3.5% in 2026. National residential house prices will rise by 2.7% in 2026, down from 3.2% in 2025, alongside continued regional divergence. 

Macroeconomic predictions: 

1. The UK will be the third-fastest growing G7 economy in 2026, with real GDP growth rate of 1.2%, maintaining a mid-table position. Pockets of opportunities exist in small sub-sectors across IT, manufacturing and creative industries.  
2. World real GDP will grow by 3%, equivalent to adding an economy the size of the UK, driven by Asia and Africa. While the US leads the G7 at 1.5%, it remains outpaced by most of the world. Growth leaders include Malta in the EU (1.4%), Vietnam in ASEAN (4.1%) and Guinea in the African Union (4.0%). 
3. All else equal, AI will directly add £2bn to UK GDP in 2026, less than one-tenth of the total rise. The impact will gradually rise with deeper adoption to total £23bn by 2032.
4. Public investment is set to grow by a cumulative £13bn in 2026-27, the biggest two-year increase recorded since at least the Global Financial Crisis. Meanwhile business investment will stagnate due to weaker business sentiment and lower profit growth. 
5. The UK population will see little to no growth in 2026. Natural population growth has slowed significantly over the past decade, from +169k in 2015 to just +11k in 2025. With migration inflows also easing sharply after the post-pandemic boom, reducing inactivity and increasing productivity become much more important levers to grow the economy. 
6. Friendshoring will continue to reshape global foreign direct investment (FDI) flows. Firms increasingly redirect FDI towards politically aligned and neighbouring countries to shorten and regionalise supply chains and reduce disruption risk. For example, the share of UK FDI outflows to the EU has increased by 12% since 2017. 
7. The rapid rise in the supply of increasingly sophisticated manufactured goods that are made in China will mean that cost-inefficient producers in the UK (and wider) will come under renewed pressure.

Other 2026 predictions 

1. London and Manchester feature strongly on economic growth and living standards, but small cities like Chelmsford, Luton and Reading will lead on happiness measures.
2. London is set to lag all UK regions on house price growth in 2026, with a growth rate less than 1%. The capital has fallen out of step with other major cities such as New York, Los Angeles and Toronto, where prices continue to rise faster. By contrast, Northern Ireland, Scotland and the North East will lead with house price growth above 4%.
3. And lastly, a more light-hearted prediction. PwC modelling(1) predicts Spain are the team most likely to win the 2026 Men’s Football World Cup, but England still has a chance. Out of the 100,000 simulations run by PwC, England finished as champions nearly 8,000 times, giving the country an almost 8% chance of bringing football home in the summer.   

-Ends-

Notes to editors

1. Tournament win likelihood has been estimated using a combination of econometric techniques. First, a logistic regression (on all international football results since 1990) was conducted to estimate team strength coefficients. Second, a Bradley-Terry model was adopted to produce a win-likelihood matrix (reflecting the win probability of any given match up). Finally, a Monte Carlo simulation on the knockout phases was completed, modelling 100,000 different permutations and aggregating results to estimate indicative tournament win probabilities for each nation.