Rising investment in artificial intelligence and defence is helping to drive UK economic growth, despite persistent inflation and concerns over employment.
KPMG forecasts the UK economy will grow by 1.5% in 2026, up from 1.2% last year and ahead of the eurozone's projected 1% growth.
Meanwhile, BDO's latest business output index reached its highest level since July 2022, climbing to 100.46 in October, while business optimism hit a two-year high.
Both reports identified increased spending on AI, defence and infrastructure as key drivers of growth, although household finances remain under pressure from rising prices.
Yael Selfin, chief economist at KPMG UK, said: “Higher prices and concerns about job security are making households more cautious, while investment in AI, defence and infrastructure is expected to play a greater role in supporting growth.”
KPMG expects inflation to average 3.2% this year before easing to 3% in 2027, but warned the recovery remained “vulnerable to further energy price shocks”.
Despite improving business confidence, BDO's employment index remained in negative territory, suggesting hiring conditions will remain subdued.
Scott Knight, head of growth at BDO, said: “For the first time in years, genuine growth seems to be on the table. The challenge for the government now is to turn this potential into reality.”
FSTE100
The UK's flagship share index, the FTSE 100, was down 70 points at 10,712 shortly after opening this morning.
Brent crude oil futures were down 1.90%, sitting at $96.45 a barrel this morning.
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