Scott Kingsley, Senior Wealth Advisor
After several years of sharp interest-rate moves, high inflation and political noise, 2026 begins on a more stable footing.
Growth is holding up across most major economies, inflation is easing rather than accelerating and central banks are signalling a more measured approach to policy.
That said, markets are still being shaped by competing forces, from geopolitics and fiscal pressure to technology expectations and energy transition decisions, which means the year ahead is likely to reward preparation more than prediction.
Rather than asking what markets will do next, 2026 is better approached by asking whether portfolios are structured to cope if events unfold differently from consensus expectations.
Global growth entering 2026 looks resilient rather than strong. According to the IMF’s January 2026 World Economic Outlook update, global output is expected to expand by around 3.3% in 2026, easing slightly to 3.2% in 2027. This is neither a boom nor a slowdown, but it does suggest the global economy has absorbed higher borrowing costs better than many expected.
Beneath that headline, growth remains uneven. The OECD’s latest projections point to US growth of around 2.4% in 2026, supported by investment and productivity gains, while the euro area is expected to grow closer to 1.5%, reflecting structural constraints and tighter fiscal conditions. China’s growth is forecast around 4.4%, slower than in previous cycles but still meaningful in global terms.
In the UK, the Office for Budget Responsibility expects real GDP growth of about 1.4% in 2026, following a stronger 2025, before settling around 1.5% in subsequent years. This is consistent with an economy adjusting rather than accelerating.
Interest rate expectations for 2026 are more settled than they were a year ago, but they still deserve caution. In the UK, the Bank of England held Bank Rate at 4% in early November 2025 and made clear that, if disinflation continues, rates are likely to follow a gradual downward path. The emphasis has been on “gradual”, not a rapid cutting cycle.
For investors, this matters in two ways. First, lower rates can support certain asset classes, particularly quality bonds and rate-sensitive equities. Second, the path matters more than the destination. A slow easing cycle keeps policy restrictive by historical standards and leaves room for surprises if inflation proves sticky.
Building portfolios around a single interest-rate call has rarely been a reliable approach. In 2026, positioning for a range of outcomes remains more robust than trying to time policy moves.
Inflation forecasts for 2026 are more reassuring than they have been since before the pandemic, but they are not without risk. The OBR’s November 2025 forecast puts UK CPI inflation at around 2.5% in 2026, down from 3.5% in 2025, with a return to the 2% target expected from 2027.
The Bank of England has taken a similar view. In its November 2025 communication, it suggested CPI inflation had likely peaked at around 3.8% and was expected to fall towards 3% in early 2026 before gradually easing further.
Even so, inflation rarely moves in a straight line. UK shop price inflation rose to 1.5% in January 2026, a reminder that price pressures can reappear even when the broader trend is improving. (Shop price inflation is a retail indicator rather than the official CPI measure, but it can act as a useful real-time pressure check.) Energy costs, wages and supply chains continue to introduce variability.
The OBR itself notes wide uncertainty bands around its central inflation forecast. For planning purposes, this reinforces the need for portfolios that can cope with inflation being modestly above or below expectations, rather than relying on a precise outcome.
The current growth environment lacks a clear global leader. The US remains relatively strong, parts of Europe are constrained and China is growing at a slower, more managed pace. This unsynchronised expansion reduces the risk of a global recession, but it also limits the scope for broad-based market rallies driven by one dominant factor.
Policy decisions continue to shape the investment environment in ways that matter for planning.
In the UK, one of the most significant developments is that the government has set out plans to bring unused pension funds/death benefits into IHT from 6 April 2027. This change was announced at the Autumn Budget 2024 and set out in detail by HMRC in November 2025. While the implementation date lies beyond 2026, the practical planning window is now.
This makes 2026 a year for reviewing estate planning structures, beneficiary nominations, and pension strategies in a measured way, rather than leaving decisions until deadlines approach. It is less about reacting and more about maintaining oversight.
There are also domestic cost pressures to watch. Higher employer National Insurance contributions are feeding through into wage and pricing assumptions in official forecasts. While this is not a dominant risk, it contributes to the inflation uncertainty already discussed.
In the US, political uncertainty remains a feature rather than an exception. US trade-policy uncertainty remains elevated following the 2024 election outcome, with potential implications for tariffs and global supply chains. The IMF has highlighted trade-policy shifts as a potential headwind, even as investment and corporate adaptation provide partial offsets.
Energy remains a central theme for 2026, but the narrative is more nuanced than simple transition headlines suggest.
The International Energy Agency’s Renewables 2025 report continues to project strong deployment through 2030, although the forecast for 2025–2030 has been revised down compared with the prior year due to policy and market changes.
The direction of travel remains clear, but outcomes depend on policy support, grid capacity and supply chains. This has practical investment implications. Returns are shaped not only by generation assets, but also by infrastructure, networks and system resilience.
For portfolios, this argues against a single, concentrated bet on any one energy pathway. Exposure that reflects the complexity of the transition is more consistent with the reality of how it is unfolding.
Technology investment continues to support global growth, and AI remains a major driver of capital spending. At the same time, the IMF has identified a re-evaluation of technology expectations as a key downside risk. Markets that price in smooth adoption and rapid monetisation leave little room for disappointment.
There is also a practical constraint often overlooked. AI is as much an energy and infrastructure story as a software one. The IEA’s work on energy and AI highlights the direct link between data centres and electricity demand, underlining that growth in this area depends on power availability and grid investment.
This context favours a more selective approach. Rather than focusing solely on headline AI beneficiaries, attention shifts towards the supporting infrastructure that enables adoption.
Several sectors are positioned to benefit from the spending patterns implied by current forecasts.
The emphasis is less on end-user AI applications and more on the components that make them viable: power systems, grids, semiconductors and data infrastructure. The basic point remains that large-scale computing requires reliable electricity and physical capacity.
Security spending continues to rise as digital exposure increases. Gartner forecasts global information security spending reaching around $240bn in 2026, providing a clear tailwind independent of short-term economic cycles.
While renewable deployment continues, system constraints elevate the importance of infrastructure investment alongside generation assets.
The OBR expects real household disposable income growth to remain modest. This supports a selective view of consumer strength rather than a broad-based recovery, with spending concentrated in specific areas rather than across the board.
Against this backdrop, portfolio construction benefits from clarity of role rather than complexity.
Equities remain central, but diversification across regions and sectors is key. Concentration risk, particularly in US mega-cap stocks or single themes, deserves careful management given the IMF’s emphasis on divergent forces and expectation risk.
With policy still restrictive but easing possible, quality bonds retain a deliberate role. They offer diversification and stability, not just yield.
Alternatives can play a role where they serve a clear purpose, whether for diversification or income. Liquidity and structure matter, particularly in uncertain environments.
Cash remains a risk-management tool. The aim is to avoid cash becoming a default long-term allocation rather than a considered component of the portfolio.
The IMF highlights clear downside risks, including geopolitical escalation and shifts in technology expectations. The OBR’s inflation forecasts also come with meaningful uncertainty ranges. In this environment, being right about one outcome but wrong overall is an avoidable risk.
Diversification, combined with reduced complexity and disciplined review, can improve the chances of portfolios functioning as intended across different conditions.
Professional advice in this context is less about prediction and more about structure. Systematic review frameworks, clear investment roles, cost discipline and sustainable income design matter more than reacting to headlines.
2026 looks set to be a year of steady but uneven growth.
Inflation is moving in the right direction, even if it is not fully resolved, and interest rates may ease gradually rather than sharply. Political and policy constraints remain part of the landscape, but they are increasingly understood rather than unexpected.
For investors, this combination creates scope for opportunity alongside risk. A disciplined approach, built around diversification, regular review, cost awareness and a clear purpose for each component of a portfolio, is well suited to an environment where conditions improve unevenly rather than all at once. In that setting, preparation does not limit opportunity; it helps ensure that it can be captured without relying on certainty.
If you’d like to talk through how your investments are set up for 2026 and beyond, feel free to get in touch. An initial conversation costs nothing and can provide a clear, structured view of whether your current arrangements still fit your objectives in a changing environment.