Generating growth is the overriding mantra of the current Labour Government, and was also central to its predecessor’s economic policy. However, generating sufficient growth to finance rapidly expanding public expenditure programmes, especially in relation to post-COVID-19 welfare payments, has proven to be very difficult. The near inevitable result has been a sharp rise in net public debt, which is now close to £3tr.
The Office for Budget Responsibility (OBR) published its Economic and Fiscal Outlook in March 2026, projecting an overall real growth figure of just 1.1% for the current year. The 2027/30 medium-term growth figure, in real terms, is a modest 1.6% per year, which is broadly similar to the average since 2010. Compared with most other developed economies outside the EU, these figures seem distinctly pedestrian.
Nevertheless, UK growth expectations did receive a boost of a sort when the International Monetary Fund (IMF) upgraded its UK growth projections from 0.8% to 1.0% in respect of the 2026 calendar year.
With respect to long-term UK economic growth generation, the Government’s 2025 Green Paper identified eight sectors, which it believes offer real prospects for growth. Some comparisons with the much-criticised 1960s strategy of “picking winners” are inevitable.
Of the favoured sectors in the List of Eight, the prevalence of AI opportunities is self-evident. Not surprisingly, Technology is highlighted. Digital expansion over the past decade has been transformational. Quantum technologies, including computing, sensing, imaging and connectivity are highlighted. Inevitably, the US experience with the Magnificent Seven comes to mind – the seven stocks concerned, with Nvidia to the fore, are now valued at a staggering £17.4tr ($23.5tr).
With heightened fears on international security, notwithstanding ongoing wars in Ukraine and Iran, defence has become a top priority – not only for governments but also for investors. The rise in the share price of Rolls Royce, a major aviation defence contractor, has been staggering – a tenfold increase over the past five years. BAE Systems, too, is prospering with a current order book of more than £80bn.
Not surprisingly, life sciences (encompassing pharmaceuticals, biotech, medtech, healthcare and diagnostics) is also identified as a growth sector – to the UK’s benefit. Over the years, GSK, AstraZeneca, Smith & Nephew, and Convatec, among others, have proved their long-term staying power: longer lifespans and higher population levels should underpin their prospects. More specifically, genomics and medical technologies are identified as having pivotal roles to play.
Interestingly, the oil and gas sectors ‒ despite high oil prices currently ‒ are both omitted from the List of Eight. The lack of new operating licences ‒ illustrated by the ongoing debate over the Rosebank oil-field and Jackdaw gas-field – are key: the drive to Net Zero is being given precedence, for the time being at least.
