Macro & Market Themes
UK Outlook: Growth Facing Headwinds
Economic forecasts for the UK remain cautious. A mix of tax increases and tighter public spending is expected to weigh on the country’s growth prospects. While this may help the fiscal position over the long-term, the near-term impact is likely to be slower economic momentum and reduced household spending power.
Businesses continue to navigate a delicate balance between higher costs and weaker demand, and the interplay between government policy and private-sector confidence will remain central to the UK’s trajectory in 2026.
Technology & the Rise of AI: Opportunity with Oversight
Artificial intelligence has undoubtedly become one of the defining investment themes of the decade. Adoption is accelerating across industries, productivity expectations are rising, and markets continue to price in ambitious long-term growth.
However, policymakers and central banks have been increasingly vocal about the risks of speculative excess. The Bank of England has warned that enthusiasm for AI-linked assets may be running ahead of fundamentals—an echo of previous cycles where transformative technology met exuberant valuations.
While AI continues to offer long-term structural opportunity, disciplined investing still requires separating genuine innovation from momentum-driven noise.
Policy, Agriculture & Taxation: Farm Inheritance Rules
Proposed changes to the Inheritance Tax treatment of agricultural land ignited strong concern among rural MPs and farming groups. While policymakers explored ways to update the system and broaden the tax base, the agriculture sector argued that the timing and structure of these reforms could have unintended and potentially far-reaching consequences. On the 23rd December, the UK Government announced a softening of the proposed tax limits from the planned £1M to £2.5M per individual.
Unlike many other assets, farmland is not simply a store of wealth; it is an operational foundation for family-run businesses that typically operate on tight margins and long-term horizons. Removing or reducing Inheritance Tax reliefs risks forcing some farmers to sell land to meet tax liabilities, particularly when the business is asset-rich but cash-poor. In practice, this could accelerate the fragmentation or consolidation of agricultural holdings, making it harder for family farms to remain viable.
There was growing concern that such pressures could affect more than farm ownership. A rise in forced land sales — especially amid heightened geopolitical tensions and global supply chain instability — poses risks to domestic food production. Reduced farm continuity may lead to fewer independent producers, greater reliance on imports, and potential vulnerabilities in the UK’s broader food security strategy. Quality and sustainability could also be affected if long-established farms struggle to maintain operations or pass down generational expertise.
The government announcement has been overall well received by the sector. Even so, the debate highlights how fiscal policy designed to raise revenue or improve fairness, can have complex knock-on effects, particularly in sectors where continuity, stewardship, and long-term planning are essential.
As discussions evolve, the balance between modernising the tax system and preserving the health of rural economies — along with the UK’s domestic food resilience — will remain a critical consideration.
Global Markets: Balancing Debt, Growth and New Market Realities
Across global markets, policymakers and investors are confronting the long-running question of how to balance elevated government debt levels with the need to stimulate long-term economic growth.
Higher debt servicing costs, demographic pressures, and the need for sustained investment in infrastructure and defence continue to shape discussions about fiscal sustainability. Yet despite those structural challenges, growth in many regions remains steady, corporate profitability has held up, and inflation trends have generally moderated toward targets.
At the same time, markets are wrestling with what some describe as a “hyper-reality” environment—one where sentiment, narratives and rapid information flows can amplify price movements well beyond economic fundamentals. This has created pockets of both opportunity and vulnerability, reinforcing the importance of valuation discipline and broad diversification.
Investment Outlook: Cautious Optimism
Looking ahead in 2026, the investment backdrop remains balanced.
• Equities should continue to benefit from stabilising inflation, healthy corporate earnings, and the prospect of interest-rate reductions.
• Fixed income offers improved starting yields and the potential for Capital Gains if rate normalisation continues.
• Alternative assets may present attractive opportunities where valuations remain compelling or discounts persist.
Markets are likely to continue alternating between optimism and caution, but history suggests that periods of uncertainty often plant the seeds for future long-term returns, especially for active managers.
