Vanguard’s economic update: Growth remains uneven

Inflation¹ is generally easing, but remains a key risk, while global economic growth remains uneven. 

Here’s what our economists are focusing on in the world's major economies.

United States

Growth has remained steady, supported by strong business investment and steady consumer spending. A slowdown in income growth after inflation could affect consumer spending later in the year. With inflation still high, we expect the Federal Reserve (the US central bank) to keep interest rates on hold.

Key points

• We expect US economic growth of 2.3% in 2026 and 3.0% in 2027.

• Consumer spending is broadly steady but may be affected by weaker real income growth.

• The jobs market is broadly stable.

• We expect the Federal Reserve to keep interest rates unchanged for now.

United Kingdom

Lower oil prices, slower wage growth and weaker services inflation have led us to lower our inflation forecasts, and we now expect the Bank of England to keep interest rates unchanged through 2027. Economic growth is expected to stay modest as higher energy costs and tighter financial conditions weigh on demand.

Key points

• We’ve lowered our forecast for year-end headline inflation to 3.1% and our forecast for core inflation (which excludes food and energy costs) to 2.6%.

• As a result, we no longer expect two rate cuts in 2026 and now expect the Bank of England to keep rates unchanged at 3.75% through 2027.

• Economic growth is expected to slow throughout the remainder of this year, then remain broadly stable at around 1.2% in 2027.

• Fiscal policy is more uncertain after the appointments of a new prime minister and chancellor, but any changes are expected to be gradual.

Euro area

The economy has held up better than expected despite renewed geopolitical uncertainty. The European Central Bank is likely to raise rates once more this year before cutting them in 2027.

Key points

• Economic activity has been resilient, with recent data showing signs of improvement.

• We continue to expect growth of 0.8% in 2026, before it picks up to 1.3% in 2027 as the energy shock fades.

• We think headline inflation will end 2026 at 3.3%, as higher energy costs continue to feed through to prices. But if energy prices keep falling, inflation could be lower than forecast. We expect core inflation to ease to 2.2%.

• The European Central Bank is expected to raise rates once more this year, then start cutting in 2027.

Japan

Japan’s economy is still growing steadily, helped by business investment, wage growth and support from government measures. Inflation risks remain and the Bank of Japan is expected to keep moving gradually towards higher interest rates.

Key points

• Japan’s economy is growing steadily, supported by business investment and wage growth.

• Government support should help soften the impact of higher energy costs, including energy subsidies and a food consumption tax cut.

• Inflation could rise again as firms become more willing to pass higher costs on to consumers.

• We expect the Bank of Japan to raise interest rates once more by the end of 2026, taking rates to 1.25%.

China

The economy has slowed due to weak domestic spending, though exports and technology manufacturing are still helping. Policymakers are expected to provide gradual, targeted support.

Key points

• Economic growth slowed to 4.3% year on year in the second quarter, falling short of market expectations.

• Spending remains weak whereas industrial production and exports – especially in technology-related sectors – continue to support the economy.

• A broad measure of inflation turned positive for the first time in three years, mainly due to higher energy prices. However, higher energy prices alone are unlikely to be enough to end the broader downward pressure on prices in the economy.

• We expect government support to remain targeted and gradual, with a focus on speeding up existing fiscal measures rather than launching a large-scale, broad-based stimulus package.

All facts and figures from Vanguard analysis, August 2026.

¹ Inflation is the rise in prices for goods and services over time, meaning your money buys less than it used to.

Investment risk information

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