Does a small rise in business confidence at the end of 2025 signal a more optimistic outlook for 2026?  Here are four reasons to be cheerful.

The Index registered -66 for December 2025, up from -73 in November (before the Budget). That’s hardly a resounding triumph, of course – and expectations remain muted on key metrics including investment and hiring. Think of it as a sigh of relief at having got past the Budget and the preceding policy uncertainty, if nothing else.

Yet while there are many good reasons for caution about the 2026 outlook, there are also reasons to think things might play out better for business than expected. Let’s look at four possible positives.

1. The economy might be stronger than it feels

UK economic growth is likely to have flatlined in Q4 2025 yet the overall number for the year should be relatively healthy, close to 1.5%. Yes, behaviour was skewed by front-loading of activity in Q1 ahead of Trump tariffs and domestic measures like the stamp duty rise. But we could see activity lift as the noise around last year’s Budget falls away.

The average forecast for 2026 is around 1% growth. The UK might yet outperform that expectation – if geopolitics and domestic factors don’t make the environment even tougher.

2. Inflation is on a downward path

The Bank of England’s December rate cut reflected expectations that inflation will continue to fall during 2026. In fact, it’s likely to be about 2% or below this spring, as government measures to help households kick in, creating space for interest rates to fall back further and quicker. That combination could yield benefits for business, if it provides consumer confidence with the kick it so desperately needs.

On the other hand, wage growth is also set to slow, and with unemployment expected to keep rising beyond 5%, consumers might still tighten their belts. Consumer confidence will be key to how the year plays out.

3. The UK political picture may stabilise

The Treasury is talking down Spring Statement’s significance as a fiscal event – meaning there should be no further tax raids in March, and, critically, no paralysing period of policy uncertainty in the run-up. Last year’s Spring Statement had a minimal impact, fiscally speaking, so businesses may have some confidence in that pledge.

There’s another benefit of sticking to the plan set out in November’s Budget. The UK still pays a premium on its borrowing after the Truss premiership; that should drop off if the Chancellor sticks to her plans.

Meanwhile, news that more than a dozen councils are set to postpone local elections in May – part of the reorganisation of local government – may not be optimal for democratic accountability. But the silver lining is a further reduction in political instability.

4. Global growth expectations remain solid

Expectations for global growth are that there’ll be little change this year – the IMF’s October update predicted growth of 3.2% in 2026 compared with 3.1% in 2025. The US is expected to deliver at least 2% growth – with upside risks from AI and the prospect of lower interest rates as inflationary pressures soften and the Fed Chair changes.

It hardly needs to be said that geopolitical risks abound. Recent US foreign policy moves – Nigeria, Venezuela, Greenland – will make many nervous, while Taiwan and the Middle East remain high-risk spots. On the other hand, securing peace in Ukraine could bring further benefits for inflation.

Will the UK government deliver?

Plenty lies outside the government direct control, yet there is so much that the UK government could still do to boost confidence and accelerate growth.

Time after time, ambitious, pro-growth rhetoric outstrips the reality of delivery. True boldness seems only to be found in policies that undermine business, like tax rises and employment rights reform.

From infrastructure investment to planning reform and deregulation, it’s critical that government accelerates its pro-growth efforts over the next 12 months.

The start of the new year is a reminder that time passes quickly for any government. Let’s hope ministers seize the moment and redouble efforts to work with business to support growth in 2026 and beyond.

 Read more of the findings of our latest Index here.