It’s the time of year when everyone gets out the crystal ball and gazes into the mists of time to see what 2026 will hold. Fortunately, we don’t need to rely on guesswork and unreliable orbs, because we already know some of the things that will be shaping your finances this year.
This article isn’t personal advice. ISA, pension and tax rules can change, and their benefits depend on individual circumstances. Investments can rise and fall in value, so you could get back less than you invest. If you’re not sure what’s right for you, ask for financial advice.
Inflation is highly likely to ease
Inflation has already fallen faster than the Bank of England expected, partly because of a drop in food price inflation.
In December, it may well have risen slightly – partly because of seasonally higher air fares. However, it’s now expected to fall to 3% in the first three months of the year and then to around 2% in the second quarter of the year. This is some of the reason why the HL Savings and Resilience Barometer forecasts steady trends in disposable income – rising 1.2% between the middle of 2025 and 2026.
The jobs market is likely to get tougher and wage rises to slow
Annual wage growth has already dropped to 4.7% before inflation and 1% once inflation is factored in. And the HL Barometer forecasts it will continue to do so – which is what’s going to keep a lid on the improvements in disposable income.
A considerable factor in this is the overall jobs picture.Already, we have seen unemployment rise and vacancies fall, and we may well see unemployment stay higher during the coming year.
We should see more interest rate cuts – but not many
The easing of inflation, coupled with a tougher employment market, means Bank of England interest rates are likely to move downwards from here. However, cuts aren’t likely to be anywhere near as regular as they have been in 2025, and we’re forecasting just two of them in 2026.
You’re likely to pay more income tax
Income tax and National Insurance thresholds are frozen until 2031. So, not only could a pay rise trigger more tax, but it could also push you over an income tax threshold – even if all the pay rise achieves is keeping up with inflation.
When you cross a threshold, it’s not just more income tax you have to worry about, but potentially higher rates on everything from dividend tax to capital gains tax, and a shrinking personal savings allowance. If you move tax brackets, it will be particularly important to consider how to cut your tax bill – including using Cash ISAs and pension contributions.
Savers and investors will need to think about tax
In April, the rate of dividend tax will rise from 8.75% to 10.75% for basic rate taxpayers, and 33.75% to 35.75% for higher rate taxpayers. The additional rate is staying the same but it’s a nasty tax hit for income investors, who have already been hit with a succession of horrible cuts in the annual dividend allowance and a separate hike back in 2022.
Meanwhile, the HL Barometer suggests that the easing of inflation is likely to mean households save more, so by the middle of the year, on average they will have enough savings to cover 3.5 months of essential spending – up from 3.3 months in 2025. The fact they have more in savings will raise the risk they face tax on their savings – which is set to get more painful in 2027 when the tax rate on savings rises.
These changes are likely to concentrate people’s minds on tax efficient savings and investments – like Stocks and Shares ISAs and Cash ISAs.
The fact that the Cash ISA allowance is set to fall to £12,000 from 2027 will also mean savers may want to take advantage while they can. Because while there’s little that people can do to control wider market forces like interest rates and inflation, they can at least make sure they don’t pay over the odds in tax.