A tale of two economies: the UK and Ireland in 2026

Both the UK and Irish economies are likely to show only weak growth this year – but for very different reasons.

While Ireland faces a reset after a short burst of strong growth in 2025, the UK continues to grapple with longer-term, deeper challenges. 

But it’s not all doom and gloom, as we’ll explore in this article. Look closely, and there are also reasons for optimism in both economies. 

This article will also provide businesses with insight on which indicators we’ll be watching most closely for UK and Ireland, and what we expect to happen to corporate insolvencies this year.

Watching the consumer mood in the UK

The UK economy is likely to be defined by ongoing weakness in business investment, a deteriorating labour market and cautious consumer spending in 2026. Against this backdrop, UK company insolvencies are likely to remain at their current high levels. Full-year GDP growth of around 1% is likely, after an estimated 1.4% uptick in 2025.

Dana Bodnar, Senior Economist at Atradius, says she will be watching closely to see if the consumer mood improves. “Consumer confidence is a good forward indicator on how the UK economy and business environment will evolve,” she says. There are already “tentative signs of improvement with a little more certainty in the economic outlook”, she adds. Further monetary easing could help further swing the mood: “Rate cuts should relieve pressure on households and give businesses more breathing room, help stabilise the labour market and support consumer confidence,” says Bodnar. 

A technical reset in Ireland

In contrast to the UK, Ireland experienced particularly strong economic growth in 2025, at around 13%. This was mostly driven by pharmaceutical exports to the US as companies front-loaded in anticipation of rising tariffs. Theo Smid, Senior Economist at Atradius, says this creates a “technical base effect” that means headline GDP is likely to show a decline of around 0.6% in 2026.

Overall, Smid says, the Irish economy is on a strong footing: operating at near full capacity with a relatively robust labour market, healthy household balance sheets and inflation likely to remain contained. Irish company insolvencies, which peaked in 2024 after a post-Covid surge, could drop 26% this year. In addition, investments and government spending will fuel activity.  

However, Smid is watching Ireland’s fiscal position closely. The 2026 Budget delivers a stimulus of €9.4 billion, comprised of additional spending and some tax reductions. But both the budget watchdog and the Central Bank in Ireland have warned that the stimulus is too large, and risks overheating the economy in combination with structural weaknesses of public finances.

External threats loom large

Ireland’s deep dependence on foreign multinationals – which paid 88% of all Irish corporate tax in 2024 – both supports and threatens its growth. “Amid rising trade tensions and geopolitical fragmentation, Ireland needs to build resilience and address structural constraints. That includes lowering the dependence on tax revenues from multinationals or improving the underlying fiscal position,” says Smid. 

The US is also among the greatest sources of uncertainty for Ireland’s economy. Even though there is now a US-EU trade deal, firms in Ireland remain vulnerable to shifts in US trade policy. Smid says: “The trade environment remains uncertain, with no certainty on how long tariffs will remain in place”. Another potential risk for Ireland is increased tax competition from the US. If the US were to lower corporate taxes, it would make it more attractive for multinationals to relocate stateside. 

Geopolitical risk is also a central risk to the UK’s economic progress, with the threat of external shocks and further cross-Atlantic trade volatility.  

The UK also continues to grapple with longer-term, structural challenges. Bodnar points to a longstanding crisis of productivity growth. “Addressing the productivity puzzle is what the UK most needs to spur growth,” she says. 

Technology investment could spur growth 

Both in the UK and Ireland, investment in new technologies offers hope for growth. In the UK, this includes growth in clean energy technologies and the adoption of AI. The UK is the third largest AI market in the world, after the US and China, according to the Government. The £150 billion US investment into the UK, announced last September, included £31 billion targeted at AI development – a significant shot in the arm. 

“This boost from AI should be supportive, helping improve efficiency and some business processes in the short term,” Dana says. However, it won’t alter the UK’s macroeconomic path in 2026, and the hunt for growth continues. Bodnar says: “We don't really see effective measures currently to boost productivity, but that's what's needed to spur growth”.

Similarly, Ireland - with its highly educated workforce and strong tech ecosystem - is also well-geared to benefit from the growth of AI. Trinity College Dublin has estimated that AI adoption will add at least €250 billion to Ireland’s economy within the next 10 years. 

AI is a clear bright spot for both of the two neighbouring economies. It’s a reminder that there are some grounds for cautious optimism, even as short-term growth looks more challenging.