The global economy has been ‘markedly more resilient than expected’ against a hostile backdrop of geopolitical and trade uncertainty, according to the World Bank which has upgraded its growth forecast for 2026.
In its biannual assessment of the international economic outlook, the world’s prominent financial body said that the “limited” pass-through of tariffs onto prices and the artificial intelligence investment splurge helped economies largely shrug off predictions of a slowdown in growth.
The bank predicts global economic growth to edge down to 2.6 per cent in 2026 from 2.7 per cent the previous year. But the projection is far higher than the 2.3 per cent growth for the coming twelve months forecast by the bank’s economists in June, as the worst of Donald Trump’s tariff threats were largely avoided and businesses raced to invest and roll out AI.
“The global economy has shown greater-than-expected resilience to major shifts in the trading system, heightened policy uncertainty and geopolitical tensions”, authors of the World Bank’s flagship Global Economic Prospects report said: “In part, this reflects short term support for activity last year that stemmed from the stock piling of traded goods”.
Meanwhile, a separate issue which has been causing concern in the UK is the unemployment situation. Employers are preparing to lay off more staff as higher payroll costs from taxes and red tape are hitting headcount expectations, an industry survey has found.
The Institute of Director’s (IoD) monthly business confidence survey showed that headcount expectations dropped in December after the chancellor Rachel Reeves’ Budget unveiled a salary sacrifice cap and higher taxes on airports and pubs. The net reading dropped from -7 to -21, setting the scene for another year of rising unemployment and falling vacancy numbers.
Researchers at the top industry body said strengthened workers’ rights in the Employment Rights bill, which is set to kick into effect this year and the ripple effects of higher payroll taxes would force employers to think twice about taking on more staff.
“Hiring freezes remain widespread, amidst concern over further cost increases in the latest Budget and the direction of travel for the Employment Rights Bill”, said Anna Leach, chief economist at the IoD.
When asked about the factors that would have the greatest impact on business confidence in 2026, top of the list were a lower tax burden and scaling back the proposed changes to employment law.
“More promisingly, improvements in regulation, trade deals with the European Union, lower tax complexity and lower business costs were also high up the list — areas where the government has stated ambitions and where tangible progress could begin to rebuild confidence”.
The IoD’s survey has showed investment intentions falling while export and revenue forecasts across firms were little changed. The headline figure for business confidence in the survey measuring directors’ confidence in the UK economy went to a score of -66 from a pre-Budget reading of -73.
Business leaders’ confidence in their own organisations hit a reading of -5. Leach warned that the readings remained around the “record lows” seen during the pandemic.
Prime Minister Starmer has singled out areas of economic policymaking that he believes could reverse the UK’s economic fortunes: planning, trade with the EU and welfare. The latest set of figures may bring some relief to Labour government officials, who have made growing the UK economy their number one mission.
Starmer suggested joining the EU’s customs union would undermine trade deals with the US and India. Instead, he said the UK should look for “closer alignment” on the single market.
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