2026 investment outlook

Global growth supported by AI and easing inflation

The global economy is expected to maintain solid momentum in 2026, with artificial intelligence (AI) investment and lower interest rates likely to continue supporting growth. Inflation is projected to gradually return to most central bank targets by mid-2027. In most major economies, central banks have either ended their rate-cutting cycles or are close to doing so.

AI is likely to continue to shape the economy and markets throughout 2026, driving significant earnings growth, particularly in the US. With global AI spending forecast to surpass $2 trillion in 2026, AI-related investment is almost certain to provide an important source of GDP growth.

Easing interest rates and broadening economic strength beyond tech should also bolster corporate earnings. However, while AI is set to transform industries and investment opportunities, there are risks that investor optimism could trigger a market correction if expectations are not met.

US President Trump announced sweeping tariffs on imports in 2025, injecting significant economic uncertainty into the global economy. While the measures have been limited so far, their full impact on global trade is expected to be felt in 2026, weighing on investment and consumption. As a result, global trade growth is forecast by the OECD to moderate from 4.2% in 2025 to 2.3% in 2026.

US and UK outlook: resilience with pockets of pressure

US growth should remain solid on the back of AI, although sticky inflation could leave the US Federal Reserve (Fed) with limited room to cut rates. While the outlook for the US remains positive, growth could falter if AI optimism declines. Consumer spending is expected to fall in 2026 as affordability worries rise and wage growth slows.

The Fed closed 2025 with three straight rate cuts. However, with inflation remaining elevated and the job market showing signs of weakness, policymakers have signalled there may be only one cut next year. Economists expect US inflation to cool in 2026, while job growth is likely to remain modest by historical standards.

With inflation easing and interest rates falling, the outlook for UK stocks looks bright. Rising corporate profits and resilient dividends mean the FTSE 100 could build on its strongest annual performance since the financial crisis and continue to push higher into 2026.

UK inflation is projected to ease steadily as price pressures fade, to around 2.5% in 2026. After the Bank of England cut rates four times in 2025, the market is now expecting just one interest rate cut in the UK in 2026.

The UK economy is set to cool in 2026 as a softening labour market and weak consumer sentiment weigh on household spending. The OECD forecasts growth of 1.4% this year before slowing to 1.2% in 2026.

Asia and Europe: policy support and steady expansion

Asian markets are poised for a strong 2026, with Chinese equities gaining momentum on the back of policy support and innovation. Japanese stocks are also set to benefit from ongoing governance reforms and fiscal stimulus.

The IMF predicts China’s GDP growth will moderate to around 4.5% in 2026, driven by strong exports and fiscal stimulus. With the economy losing momentum amid a spending and investment slump, policymakers are expected to prioritise boosting domestic demand.

Efforts to stabilise the property market have intensified, including measures to support affordable housing and reduce excess supply, although it remains unclear whether this will deliver a lasting turnaround.

Europe’s economy is expected to maintain a steady pace of growth in 2026, supported by easing inflation, lower interest rates, resilient consumer demand and fiscal policy. As trade adjusts to tariffs, the domestic economy should benefit from easing price pressures, falling borrowing costs and a robust labour market.

Eurozone employment is expected to continue expanding, with unemployment close to historic lows. Stable growth and inflation close to target suggest the European Central Bank is likely to keep interest rates on hold throughout 2026.