Is Britain back? 5 things to watch in the UK in 2026

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dispatch

As the new year arrives, the next 12 months look optimistic

The main hope for the UK will be that 2026 will be better for the economy, households and businesses than 2025.

The economy entered the new year flat, but in 2025 FTSE100 While the index posted its best one-year gain since 2009, it was not indicative of the health of many individual companies.

With that in mind, here are five things to watch in the year ahead.

interest rate cut

The first question is how far the Bank of England will go to further cut interest rates. The bank cut the bank interest rate four times in 2025, but fewer times than expected, bringing the key policy rate from 4.75% to 3.75%. The market is expected to see further cuts in 2026, but not as much as was expected this time last year.

At its last meeting on December 18, the Monetary Policy Committee, which decides on interest rate settings, made it clear that interest rates were still on a downward trend, but noted that this situation would become more strained with each rate cut. Four of the nine-member committee voted against a rate cut in December, clearly concerned that with inflation at 3.2%, well above the central bank’s 2% target rate, there is limited scope for further rate cuts.

Of particular concern is that, as the committee’s hawk Katherine Mann said last month, “rising household inflation expectations…have been shaped by a prolonged high-inflation environment.”

This is borne out by the World Bank’s latest quarterly inflation sentiment survey, released last month, which found that median inflation expectations for next year were 3.5%, down from 3.6% previously.

On that basis, while further rate cuts are expected in 2026, it would be unwise to bet that the final rate (the level at which rate cuts end) will fall below 3%.

If that happens, it’s because of concerns about unemployment, which is the second thing to watch out for.

anxiety about unemployment

Britain’s unemployment rate was 5.1% at the end of October, the latest month for which figures are available, the highest level since March 2021, when the economy was emerging from the last of three coronavirus lockdowns.

The number of job openings has been steadily declining since its peak in mid-2022, reaching 729,000 at the end of November, the highest level since May. Much of the blame has been placed on Chancellor of the Exchequer Rachel Reeves, who raised payroll tax in her first Budget in October 2024 and added employment funding in her most recent fiscal session in November last year.

Unemployment is expected to rise in 2026 as productivity stagnates.

The Resolution Foundation, a centre-left think tank that enjoys close ties to the government, warned this week that a combination of minimum wage hikes, high energy prices and a long period of high interest rates could ultimately wipe out thousands of so-called “zombie companies” – companies that managed to survive from 2009, when interest rates were near zero, to 2022 – companies that could service their debts but do little else.

An unemployment rate of 5.5% would be the highest in 11 years, suggesting it would be Reeves’ third alarming problem.

Prime Minister’s Challenge

Bookmakers who tend to get these things right expect her to step down this year, with William Hill giving her odds of 4/9. That being said, Reeves was very unlikely to resign last year and his survival was limited.

The most likely candidate to replace him is Work and Pensions Secretary Pat McFadden, a shrewd businessman and one of the few cabinet ministers who served in the last Labor government. Meanwhile, the second most likely candidate, Torsten Bell, deputy finance minister and former chairman of the Resolution Foundation, could face competition from the younger Darren Jones. His strong performance as Chancellor of the Exchequer recently persuaded Prime Minister Keir Starmer to give him a new role at the heart of the government: Principal Secretary to the Prime Minister.

management confidence

The fourth thing to watch is whether British business regains momentum. Business investment in the UK remains the weakest of the G7 economies in 2025, having been negative in two of the past four quarters, but was due to turn positive in the final three months of the year, according to recent survey data.

But 2025 shows an improvement compared to 2024, and it probably would have been better had it not been for the volatility caused by President Donald Trump’s tariffs, which dealt a severe blow to confidence. Investment is expected to continue to recover in 2026, but it will likely be concentrated in areas such as research and development and intellectual property rather than tangible investments such as buildings and equipment.

It’s also worth keeping an eye on the rankings of big companies, as a number of new chief executives take the helm of FTSE 100 heavyweights. blood pressure, diageo, GSK and severn trent.

Initial public offering

The final thing to watch is whether IPOs finally return to their previous levels. There will be just 22 IPOs in London in 2025, up from just 16 in 2024 and well below the historical average.

However, bankers are hopeful that investors are regaining appetite for new stocks after the market’s strong performance last year and recent reforms and regulatory changes aimed at making London a more attractive listing location.

All eyes are on Visma, the Norwegian software group backed by private equity firm Hg Capital, which recently chose to list in London rather than Amsterdam. In 2023, a private equity sale valued it at 19 billion euros ($16.45 billion).

Other banks that could enter the market this year include challenger banks Monzo Bank and Starling Bank, credit bureau ClearScore and insurance brokerage giant Howden, famous for its sponsorship of the British and Irish Lions rugby team.

Mr Reeves introduced a three-year stamp duty holiday for newly listed companies in his November Budget, raising hopes that at least some of these stocks will come to market and gain a decent following.

Of course, there is one final factor that could be a big boost to sentiment. It’s the Soccer (or Soccer…) World Cup, hosted by Canada, the United States, and Mexico, which begins on June 11th. If England win for the first time in 60 years, it would be of unimaginable value to the economy. But don’t hold your breath.

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The UK is the birthplace of commercial nuclear energy, but only a fraction of its electricity is currently generated from nuclear power. Tasmin Lockwood has been paying attention to how the country’s government is trying to usher in a “nuclear golden age”.

need to know

UK’s Octopus Energy spins off its AI division Kraken. Origin Energy, which owns a major stake in Octopus, said in a statement late Monday that Octopus had raised $1 billion in its first solo funding round, valuing the business at $8.65 billion.

Has the UK’s AI infrastructure development been a success?The UK announced its AI Opportunities Action Plan in January last year. But critics point to energy restrictions and construction delays as signs the country is at risk of falling further behind global rivals in the AI ​​race.

UK stocks outperformed Wall Street in 2025. London’s benchmark FTSE 100 index rose more than 21% last year, outpacing the S&P 500 index’s 16.39% rise. Analysts believe the FTSE 100 could rise further in 2026.

— Holly Ellyatt

Quote of the week

at the market

of FTSE100 Last week, it made history by breaking through the landmark 10,000 level on the opening day of 2026 for the first time since it began trading in January 1984. The UK blue chip index rose 1.2% on Tuesday to close at 10,122.73, up from 9,931.38 the previous week.

of british poundMeanwhile, the year has gotten off to a strong start against the dollar. The pound was trading at $1.3493 on Tuesday afternoon, London time, up from $1.3473 against the US dollar last Wednesday.

Also known as the UK government’s benchmark 10-year bond yield. gold leaf — Tuesday also ended at 4.487%, up slightly compared to 4.474% a week ago.

— Hugh Leask

very soon

January 8: Halifax Home Price Index for December
January 13: BRC December Retail Sales
January 15: UK GDP data for November