The Year Ahead 2026

While President Trump’s ultimate pick for Federal Reserve Chair remains unknown, the direction of policy for incumbent Jerome Powell is clear: a more politically responsive, easier policy stance in 2026. We look for 25 basis points (bps) of further easing in December 2025 (-75bp in total in 2025) with an additional 75bps of easing in 2026, taking the terminal rate to 2.75-3%. 

The Fed has made impressive progress in getting core inflation down from a peak of 5.6% in early 2022 to just under 3%, but the last stretch to 2% may be the hardest. We expect that core consumer inflation will decelerate from 3.1% in Q4 2025 to 2.7% in Q4 2026 and to 2.5% in Q4 2027. Given that inflation has remained high for several years and looks set to remain sticky, people might start to believe in its permanence. Another year or two of above-target results could further fuel this underlying psychology.

What else might affect inflation?

We anticipate that unemployment will rise to slightly over 4.5% in the coming months. Labour demand has slowed sharply lately, with payrolls averaging only 27,000 additional hires per month since April. This weaker job growth has occurred alongside limited labour supply, which has softened the effect of slower hiring on unemployment. 

Reduced immigration and an aging population have slowed labour force growth. At current rates, we suspect that net immigration may be as low as 350,000 in both 2025 and 2026 (down from about 2 million in 2024). This could add to wage pressures for some groups of workers. We estimate around 50,000 or so job gains are needed each month to leave the unemployment rate unchanged. 

In the near-term, at least, expected tariff increases will likely raise prices and slow economic growth. Fed officials expect that a one-time rise in the price level due to tariffs will eventually fade and inflation will move down a bit ending 2026 closer to 2.5%. We are less convinced that inflation will move down quite as much.

The Bank of England’s (BoE’s) easing cycle is not yet complete. However, we expect a 25bp cut to 3.75% in February 2026. Might we see 3.5% in March or May?

The labour market will be the decisive battlefield. Employment figures were more resilient than many feared for much of 2025. Our forecast is for ongoing and modest declines in payrolls into early 2026, followed by weak net gains in H2 – in effect, insufficient to absorb the natural growth in labour supply. We project the unemployment rate to rise to exceed 5.25% in 2026 and to bear down on still-excessive wage inflation.

Meanwhile, wage and domestically-generated inflation remain substantially above target, with some tentative signs that wage growth is levelling. None of this suggests the UK has a particularly stubborn wage inflation problem, but does cast doubt on a hasty cut to near 3%. 

Elsewhere, we are sceptical that BoE policymakers will be overly influenced by more aggressive Fed policy easing. Market pricing is another matter, and our relatively hawkish BoE view is likely to be challenged by Fed delivery. However, we regard any Fed politicisation risk as more likely to forge greater policy orthodoxy within Threadneedle Street in the near-term. Given the UK has been more inflation-prone than other economies, BoE credibility is likely to come under greater scrutiny.

The European Central Bank (ECB), by contrast, paints a picture of monetary stability. Inflation expectations – from surveys, financial market indicators and underlying measures – have converged consistently and persistently over the past two years to levels in line with the ECB’s inflation target. With GDP growth expected to be only a touch faster than trend, we see no reasons for inflation to move significantly below or above target, barring new geopolitical events leading to a surge in energy prices or to major FX misalignments. Risks appear broadly balanced, with Germany’s fiscal stance emerging as a key development that may spur economic growth.

We predict an end to the easing cycle at 2% since last year’s Year Ahead and see no reason to revise that view at the end of 2025. The macro rationale remains unchanged, and market pricing has converged to our long-held view over the course of 2025. With rates at a neutral level, we expect ECB policy to remain on hold in the absence of new shocks.

Our view of inflation

Source: NatWest 

The UK has never had a combination of such high public sector debt (which sits around 100% of GDP) and excessive deficits. It also faces a widening gulf between funding costs (with Gilt yields trending higher) and the ability of the economy to generate total tax income. The end of ‘zero’ interest rates and quantitative easing (which in practice mopped up around £400bn of Gilt supply), are also adding to funding concerns.

In the UK, taxation is close to peacetime highs, projected to reach 36.8% of GDP this year and 37.7% in 2027-28 – the latter exceeds levels in the aftermath of World War II. Yet, there remains demand for higher public spending. A doubling of UK corporate taxation (all taxes paid by companies as a % of GDP) has weighed upon capex, while sterling interest rates would be lower if the government did not borrow such enormous sums.

So supply will be the primary driver of Gilts in 2026 and term premia will stay elevated. 10y yields are expected to peak close to 4.8% in H1, with risks around this seen being skewed higher due primarily to global crosscurrents. Demand from banks and overseas investors remain key.

Our gilt yield predictions

Source: NatWest

First, the good-ish news: we expect the full year 2026 budget deficit to remain at $1.8tn, broadly matching that of 2024 and 2025, while the deficit as a percentage of GDP looks set to decrease to 5.7%. This would be a moderate result when viewed against start-of-year expectations that saw Presidential campaign promises reducing fiscal sustainability in the near and long term.

But, and there’s always a but: relative near-term stability does little to mask the path of US debt sustainability. Growth in mandatory spending on social programs and interest expense will greatly limit the ability for fiscal control to be regained at some point in the future.

Indeed, borrowing needs will remain exceptionally high. We continue to expect net federal borrowing from the public to total 6.3% of GDP in FY26 (after 6.6% in FY25). Even a pause in the trajectory doesn’t erase the long-term challenges presented by an aging population over the next few decades.

To put the sums we’re talking about in perspective: interest expense in 2025, at $970bn, outpaced defense spending for the first time, and should exceed $1trn in 2026, or nearly 14% of the total expected government outlays. Mandatory programs like Medicaid, Medicare and Social Security collectively cost more than $4.25trn (61% of outlays), impinging on discretionary spend, which is currently 25% of all outlays. Trimming discretionary spend to meaningfully reduce spending is akin to emptying the ocean with a bucket.

Healthier than most peers, the euro area’s aggregate public debt ratio is notably approaching pre-Covid levels – at 88% of GDP vs. 84% – and aligns with the average of the past two decades.

Deficits have risen, from under 1% five years ago to around 3% of GDP currently, but this is still broadly in line with historical norms. Moreover, the euro area’s external position is strong, with a 2% current account surplus and a positive net international investment position (NIIP) – both anchors for fiscal sustainability.

For rates markets, the newfound ‘call to arms’ on public investment will mean 2026 is another year of heavy supply and steeper curves. Germany will do much of the heavy lifting when it comes to issuance, and clearly has the most fiscal space to do so. With elevated supply, and structurally changing demand we think yield curves in Europe will further steepen into 2026. 

Politics matters, though. Political risk can be another key driver of fiscal stress. French political uncertainty remains a key concern for the country’s spreads, and for the euro area more broadly. A new major event (an election, for instance) could in some scenarios transform what is so far a muted, idiosyncratic event into a systemic issue for the area as a whole.

Deficits stabilising, but at too high levels…

Source: NatWest, IMF

IMF Currency Composition of Foreign Exchange Reserves (COFER) data have long shown a gradual shift away from the dollar as the undisputed reserve currency.

At the turn of the millennium, the dollar represented over 70% of globally allocated foreign exchange reserves. That figure stands at 56% as of 2Q 2025, a sign of the steady decrease in the dollar’s role as the unquestioned global reserve currency. 

A reserve in reverse? Currency composition of official foreign exchange reserves (COFER)

Source: IMF

This, it seems, is a big, beautiful conundrum.

Treasury Secretary Scott Bessent and President Trump have each publicly backed the Treasury’s strong dollar policy. And we do not expect the US to back away from this because the administration sees both economic and security benefits to it.

Economically, Bessent has repeatedly flagged how the tenets of a strong dollar policy help encourage a reshoring of investment into the US economy. On the security front, the USD’s prominent role in the financial system gives the dollar significant economic leverage via sanctions policy that the administration is wary of letting slip away.

However, a weaker dollar could be a potent tool to correct trade imbalances, a clear objective of the administration, and the President has at times lamented the currency’s high valuation. Before joining the Trump administration, former Council of Economic Advisers Director and current Fed Governor Stephen Miran posited that dollar reserve currency status does have downsides. One could argue that Trump’s desire for the Fed to quickly lower front-end interest rates implies a desire for a weaker currency for competitive advantage as well.

We don’t expect the Trump administration to directly pursue a weaker dollar in 2026. But we think the question about the dollar’s role in Trump’s global trade rebalancing, as well as Trump’s desire for lower interest rates, will continue to overhang the currency’s outlook into 2026 and beyond. A shift in official policy towards the dollar could erode market confidence in its store of value, accelerating de-dollarisation.

Critically, the dollar does not need to lose its global reserve currency status to weaken. A shift in FX hedging activity can see the dollar weaken further even without a material shift in foreign demand for US assets. And we think that increased FX hedge ratios remain a downside risk to the dollar in 2026. FX hedging risks also have the potential to be self-fulfilling: weakness can encourage additional hedging activity, which further weakens it. 

Anecdotal evidence abounds that foreign investors are more actively considering increasing FX hedge ratios, even though concrete evidence that hedge ratios have increased in 2025 is mixed. Many factors feed into hedging decisions, including cost of hedging, relative volatility and correlations between the US dollar and underlying assets, such as equities. These will be important factors to monitor throughout 2026. 
 

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The outlook for global GDP growth next year is beset with uncertainty. While the International Monetary Fund (IMF) maintains a stable projection for global growth, at 3.1% in 2026, it is a notable outlier. In contrast, the World Bank projects average global growth of 2.5% in the 2020s, the slowest pace since the 1960s. The OECD is even more pessimistic: it predicts 1.9% growth for both 2025 and 2026, explicitly citing an “escalating trade war spurred by US tariffs” as the primary cause. 

This lack of consensus underscores uncertainty around global trade. The WTO has significantly lowered its forecast for global merchandise trade growth in 2026 to 0.5% – a notable drop from its prior estimate of 1.8%, as the impact of US tariff rises and diminished front-loading of purchases in anticipation thereof weigh down the outlook.

For global growth, the implication is clear: trade’s multiplier effect – historically a key driver of GDP expansion – is declining. Trade is no longer strengthening the cycle but is instead exaggerating the fortunes of different regions and sectors. Economies (and regions) with low fragmentations exposure, stronger services exports, and deep regional integration are positioned to leverage trade as a growth driver, while others face headwinds from policy fragmentation and competitiveness. Overall, the era of broad-based trade-driven globalisation is over.

All at sea: six vital shipping corridors for world trade

Source: NatWest, WTO

1. Geopolitics as a policy lever

Geopolitical competition is no longer episodic – it is a structural part of trade policy. Decisions on export controls, industrial subsidies and allied procurements are increasingly being framed as security-economic choices. Measures justified on national security grounds cover rising shares of trade, with the United States showing higher coverage on both imports and exports, while Chinese and Japanese controls skew towards exports.

Trade is now a tool of statecraft, with national security and economic decoupling objectives driving policy decisions. For instance, EU sanctions and import bans on Russia have slashed EU-Russia goods trade by roughly 82% from early 2022 to 2025.

2. Supply chains prioritise continuity and security

Global supply chains remain strained post-Ukraine invasion, influenced by US tariff policies, US-China tensions and instability in the Middle East. Despite reduced order backlogs since 2021-2022, challenges persist, with an elevated World Bank Global Supply Chain Stress Index indicating shipping delays. Companies avoid the Suez Canal, opting for the Cape of Good Hope route, yet freight costs have dropped due to oversupply and reduced demand. Strategies like re-shoring and near-shoring are gaining traction, especially in energy and tech, to enhance resilience. Governments focus on domestic microchip production and rare-mineral diversification in a bid to ensure security of supply. Indeed, the shift from ‘just in time’ to ‘just in case’ inventory models reflects that supply security is being prioritized over cost efficiency.

3. Technology and artificial intelligence are political totems

Global value chains are shifting due to strategic competition in technology-focused industries, particularly semiconductors and electric vehicles (EVs). Governments are heavily subsidising domestic production, moving beyond traditional trade policies. In semiconductors, the US and Europe are investing billions in domestic fabrication, with trade barriers expected to create competing tech standards in the near future. 

The race for rare earths and energy minerals, crucial for EVs and computing, was a major theme in 2025. Most recently the US and China agreed to postpone export restrictions on these (and chips) for a year following their trade truce at the South Korea summit. However, this tactical competition is likely to continue in 2026 and beyond as countries rapidly invest to build de-risked supply chains outside of China’s control. Understandably, the US will continue to accelerate efforts to secure alternative supply chains.

4. Energy transition pacts and green trade might spur international alliances

The energy transition is rapidly becoming one of the most significant disruptors of traditional trade flows, manifesting through explicit trade-linked environmental policies. The EU’s Carbon Border Adjustment Mechanism (CBAM), currently in its transitional phase and set to impose financial obligations from 2026, is the prime example. 

Might a fragmented ‘Green Trade Club’ also emerge? While the EU leads, other countries (like the UK and Canada) are considering their own versions of border carbon adjustments, creating a patchwork of carbon standards and reporting requirements. Simultaneously, massive national green subsidies (like the US Inflation Reduction Act) are spurring cross-border disputes, blurring the line between legitimate climate action and protectionist industrial policy.

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This policy dropped into a geopolitical cycle riven by disputes and wars: more state conflicts underway than at any time since 1945; more deaths than at any point in the past three decades; a historic surge of countries meddling in conflicts beyond their borders (78 – a 175% increase in this fragmentation since 2010); and, a revolutionary use of unmanned weapons that offered precise, long-range and affordable destruction.

Decades-old geopolitical dynamics were already driving much of this disruption. 

First, the shift from a US-led unipolar order to a more complex multipolar world – marked by competition between declining and rising super-powers, the emergence of ambitious and muscular middle-powers and the weakening of global governance institutions. 

Second, the growing criticality of revolutionary new technologies: computer power and AI, automation and robotics, space-based sensors and communications, new energy and transportation systems; and possibly the most impactful – synthetic biotechnologies. The race for sovereign relevance – or even dominance – of these technologies or their components was already shaping geopolitical relations; exemplified by China’s restrictions on trade in strategic minerals and the magnets they enable.

These political and technological shifts happened against a backdrop of worsening climate impact and worrying demographic evolutions. Drought, flooding or extreme heat were provoking disputes or driving migration. Economic stresses and migration pressures were already evident as demographic trends became meaningful around the world: aging and shrinking populations in mature economies, burgeoning and under-employed populations elsewhere. 

To this turbulence Washington added disruptive rhetoric, ruthless homeland prioritisation and unpredictable policy execution, well and truly ‘flooding the [media] zone’. And the US administration, often led by special representative Steve Witkoff, maintained a frenetic pace, pivoting from the ‘shock and awe’ of the first 100 days to a dizzying sequence of geopolitical manoeuvres – from the US borders through Eastern Europe to the Middle East and, most recently, to China, with stop-offs around conflicts involving Cambodia and Thailand, India and Pakistan, Rwanda and Congo, Armenia and Azerbaijan, and Venezuela.

The fact that the markets have nevertheless remained broadly stable and positive cannot be explained solely by optimism or confirmation bias. There is a sense that modern economies are better equipped with technological or stock redundancy and better informed by data to flex around jolts to supply chains, infrastructure or political norms.

This hypothesis is sure to be tested in the year ahead. We should expect more jolts as the tempo of conflicts and disputes persists; the absence of violence should not always be confused with peace, never mind conflict resolution.

The resilience of modern economies has yet to face a truly systemic test. Does the market needle move when we have a prolonged break in critical infrastructure because multiple undersea cables are fractured? Or when there is a traumatic upheaval in the governance or constitutional framework of a major power? Or when a calibrated exchange of firepower between rival militaries that suddenly loses calibration and veers towards nuclear thresholds?

Some broad themes are likely to shape geopolitics in 2026. 

States are not passive in the face of this emerging new world order and its hazards. We’ll continue to see a reorientation of critical supply or defence relations to hedge against risks of tariffs or use-case limitations imposed by allies or choke points controlled by adversaries. 

If this reorientation is about the ‘who’, then defence and security capabilities will form the ‘what’. States will scramble to rearm and bolster defences against perceived existential threats. Spending may not match 2024’s 9% surge, but it is likely to be close to 2025’s forecast 4% growth – and the money will be spread across a broader range of equipment as states try to keep pace with the full spectrum of modern warfare threats. And that spectrum is likely to include near-earth space.

The geopolitical ‘why’ behind this reorientation and re-arming will be tested along two timelines in 2026. 

The first will be a question of resolve: whether states are able to harness national will in order to endure through very long-term challenges. For example, whether Europe stays the course in supporting Ukraine’s defence; whether an international community sustains its advocacy and pressure in support of a political solution for Israel-Palestine; whether the Philippine coastguard is a match to Chinese presence in contested waters. In every case, this claim to ‘national will’ faces competing claims within domestic budgets and of political fatigue from less resolute opposition parties.

The second timeline consists of discrete dates in the 2026 calendar that will have the feeling of geopolitical reckoning. Elections in Europe will gauge the momentum of populist far right parties, especially if we see further turmoil in French politics. A general election in Israel could redefine how national security is pursued – by perpetual militarism on the periphery, or by renewed deal-making with neighbours. And in the United States, a series of Supreme Court judgements could set the stage for a mid-term election framed by political polarisation and constitutional anxiety.

In retrospect, Liberation Day may be remembered less as an act of disruption and more as the moment the post-war order finally gave way to an era of unapologetic realism. As tariffs, treaties, and technologies merge into instruments of national leverage, diplomacy is reverting to its original form – a contest of interests conducted in public view.

The coming year will reveal whether nations can manage this return to hard-nosed realism, without sacrificing the stability that once made co-operation worthwhile.

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2026 promises to be beset by uncertainty. Political volatility has become the new norm, and this is not just about the US. All Western economies face political challenges and instability fuelled by fiscal backdrops and meaningfully increased ‘cost of living’, with governments’ popularity dropping to record lows. For corporates, it means that forecasting has become an exercise in attempting to manage the ‘unknown unknowns’, which by nature should not be possible. Everyone is having to learn to adapt in real time and building resilience is part of the answer.

But there will come a point at which this becomes background noise and we have seen in the second half of 2025 situations largely ignored by the markets. When Trump imposed new tariffs in early 2025, the initial reaction was sharp. Now, markets seem to be measured and weighing the relevance of each statement. 2026 could see a refocus on the hard facts.

Margins and spreads remain tight and barely reflect the risks implied by this uncertainty. The markets are perhaps beginning to develop some immunity to the ‘chaos’. Whether that’s healthy or not remains to be seen.

The second challenge is growth. Everyone talks about it, but growth hasn’t materialised, yet. In the UK especially, inflation remains a concern and the appetite for investment is cautious and has been for a number of years.

When it comes to investing in new technology like AI there is a further challenge. It’s moving so fast there’s a fear about committing to the wrong technology, taking a path that might be outdated in six months. But if you wait too long, you risk missing the train entirely. This is probably why we see so many corporates testing it; they’re treating it as a tool, and not yet a complete transformation.

Cybersecurity is also a growing concern. The rise of AI brings with it an increased risk of cyberattacks and deepfakes. We have seen fraud involving deepfakes, scammers impersonating senior employees asking for payments or transfers of funds. How is someone expected to behave if they received a video call from the boss of their boss or the CEO? While this remains anecdotal, it highlights that it is increasingly difficult to take for granted what we see. We are entering into a new era of ‘doubting everything one sees’ with the line between the real and the virtual or the ‘fake’ becoming less visible.

The immediate post-Covid years have seen a strong focus from corporates on the physical resilience of their supply chains; the focus will move to their digital and cyber resilience given how the chain is often structurally and digitally inter-connected, forming a unique end-to-end system.

There’s also a potential tension playing out on regulation between UK, Europe and the US. We are likely to see further deregulation in the US next year, releasing more capital and generating additional liquidity into global markets. But European central banks and the Bank of England, by contrast, are pressing ahead with plans for Basel 3.1 and other regulations. That may create an imbalance and add to uncertainty about where investment flows go. 

Yet we are seeing that corporate activity, including M&A, is picking up again. While the ‘mega deals’ are yet to come, large transactions are back (we see good signs of this in the US). One notable trend likely to continue in 2026 is Public-to-Private (‘P2P) deals. Large public corporates are being taken private by private equity funds, moving them from listed entities, typically investment grade, to leveraged private structures. That has significant implications for governance, strategy and long-term planning. Leaders are no longer ‘chasing’ quarterly results, but they are under pressure to deliver within a three-to-five-year horizon before being likely sold again.

If I have a wish for 2026, I’d really like to see some resolution to the geopolitical tensions and conflicts. It would make a huge difference, and may help set the UK on a path to growth. But globally it feels like instability is here to stay throughout 2026. Deglobalisation and increased defence spending will create new opportunities for corporates but it is critical that consumer spending continues and that is now less sure…

The challenge is how we tune it out just enough to keep moving forward without missing what still matters.

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As climate-related losses mount, more companies are expected to announce resilience plans in 2026 – driving investment into adaptation technologies and infrastructure. With 2024 being the hottest year on record and $162bn in losses in early 2025, climate resilience is no longer optional.

Despite these signals, financial markets continue to underestimate the risks. A 60% insurance protection gap is emerging as a systemic threat, affecting asset valuations, credit risk and capital flows. Under a medium climate scenario, S&P Global 1200 firms could face $25trn in cumulative costs by 2050. Yet only 35% of companies have disclosed context-specific adaptation plans. Utilities and real estate are leading, but broader uptake is needed.

Investor pressure is intensifying. Companies must demonstrate how they will manage disruptions to critical infrastructure – electricity, water, transport – to maintain confidence. Corporate communications reflect this shift, with a 55% rise in resilience-related language since 2021. However, private capital still lags, with more than 85% of resilience funding coming from public sources.

Sustainable bond issuance is expected to remain strong in 2026, with approximately $1.1trn in green, social, sustainability and sustainability-linked (GSS/S) financing – matching 2024 levels. Fund flows are expected to provide robust technical support, especially in Europe where momentum for European Green Bonds continues.

Although GSS debt supply hasn't returned to its 2021 peak of $1.15trn, it now accounts for 5.2% of total global bond issuance – surpassing the previous high of 4.9%. This marks a helpful step in mainstreaming sustainable finance.

Regional dynamics are shifting. In the US, political uncertainty and regulatory changes have led some issuers to prefer conventional formats to avoid reputational and execution risks. This has caused a temporary slowdown in labelled issuance. Nevertheless, dollar-denominated GSS supply remains active, particularly among US issuers who benefit from strong investor demand and currency diversification.

Investor demand continues to support the sustainable finance market. ESG and SRI fund flows have remained broadly constructive over the past five years, with only a few quarters of net outflows – highlighting the enduring appeal of SRI-linked strategies.

Despite macroeconomic shifts, we anticipate $1.1 trillion in labelled issuance in 2026 – a 10% increase from the $1trn forecast for 2025. This reinforces sustainable finance as a structural feature of global capital markets.

2026 will be a pivotal year for the International Sustainability Standards Board (ISSB), as enforcement begins across many early-adopting jurisdictions. This could trigger the long-awaited consolidation of national sustainability reporting regimes.

Currently, over half of global GDP and 40% of market capitalisation falls under jurisdictions formally adopting or aligning with ISSB standards – creating a de facto global baseline for sustainability disclosures.

Several early adopters are moving ahead. Brazil begins mandatory ISSB-aligned reporting for listed firms in January. The UK is finalising its own standards, closely modelled on ISSB. And Hong Kong has already embedded climate disclosure rules, with phased enforcement underway.

ISSB is also expanding its scope. Its 2024–26 work plan includes research into biodiversity, ecosystems and human capital, thereby laying the groundwork for broader sustainability standards. This shift from climate-only reporting to comprehensive sustainability coverage is a welcome development.

Bottom line: while full enforcement is still evolving, ISSB is rapidly becoming the global reference point. Companies and investors should prepare for wider adoption, deeper integration and rising expectations around decision-useful sustainability data.

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Open Banking has been, and will continue to be, a major part of an evolving culture of new payment methods. Adoption is growing steadily, and we have seen use cases disrupting cards but equally address niche pain points.

One example is commercial variable recurring payments, which are gaining ground and will soon sit alongside traditional models like direct debits and cards on file. NatWest has lead the adoption of sweeping (me-to-me) payments and is working with large corporates on driving commercial (me-to-third-party) payments.

As Open Banking evolves, the insight it delivers is moving from theoretical to practical. It’s helping institutions personalise services, streamline operations and meet customers where they are. The infrastructure is falling into place and the ambition to make it work for everyone is gaining pace.

NatWest is going further, pushing into more complex applications of Open Banking. We are developing an affordability algorithm, using Open Banking data, that can help firms in sectors like media, financing or utilities to support vulnerable customers. It’s about giving companies the tools to offer more targeted, responsible services.

Account Information Services (AIS) is yet another Open Banking tool to help unlock value. Take onboarding as an example. For wealth managers, being able to verify account names and numbers in real time at the point of onboarding ensures compliance and streamlines the process. When that same account is later used to fund an investment, the link is already validated. The result is a smoother journey for the client and a more efficient process for the business. And this isn’t the only use case of AIS; there are more and growing.

The ecosystem is evolving. Fintechs, who were once market disruptors, are now seen more as essential drivers of innovation. Open Banking beyond the regulatory requirements, accelerated because fintechs saw its potential and forced the bigger players to respond. The same pattern is playing out in cross-border payments, where new entrants opened access to local payment rails and at competitive foreign exchange – banks responded with their own compliant, robust solutions. The challenge from these innovators ends up strengthening the system.

And clients expect more than ever from financial services providers now. Real-time visibility and reporting (more than payments) are now central to what they expect. With interest rates where they are, businesses want instant visibility of their cash positions. The ability to reconcile incoming transactions immediately and act on the insights – whether reallocating funds, passing on the benefits to their end customers in certain situations (claims processing, credit card limits, deployment of client funds) – is critical. It’s not just about speed; it’s about making better decisions in the moment.

Fraud prevention is also evolving. We are looking at how digital identity initiatives can complement Open Banking to enhance robust verification and risk mitigation. Artificial Intelligence has also been used internally across the industry in multiple areas, including behaviour analytics and client profiling.

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The foundations of UK payments are undergoing a generational shift. We’re seeing serious strategic engagement from the Bank of England, HM Treasury and regulators through with the establishment of the Payments Vision Delivery Committee. NatWest will be part of that effort as a board member of the Retail Payments Infrastructure Board. The goal is to modernise the way payments are made, including updates to legacy systems such as BACS and Faster Payments. These changes won’t land overnight as it’s a multi-year programme and it marks a shift in how the industry collaborates.

Tokenisation and digital assets will radically improve how money moves; especially in the wholesale space. There will be developments in stable coins and central bank digital currencies. Today’s payments may be electronic, but they lack sophistication. They don’t have context as to where they have come from or what to do next. We can now elevate that to a conditional “If this, then that” approach. With developments like programmable money, we could improve how payments work for small business owners and in situations like international trade, where payment could be triggered automatically once goods arrive at a port. Tokenisation will remove friction and make money smarter. This isn’t about replacing traditional money, it’s about making it work better: which is why NatWest, and our peers are developing the Great British Tokenised Deposit (GBTD) to improve how money moves.

Digital wallets, like those from Apple and Google, are no longer just about convenience. The race is on to meet rising customer experience expectations shaped by companies like Uber and Amazon. Consumers want better, faster and simpler experiences. There are always three forces driving these types of change: will regulation permit it, does technology make it viable and do customers want it. The answer increasingly seems to be yes on all three fronts.

 With the opportunity to add your identity tokens, important documents, proof of age, loyalty cards… even car and house keys… we can do much more with digital wallets, and we should.

Every time we improve what we do in finance, fraudsters want a share of it. For CEOs and CFOs, the threat landscape is constantly evolving. Hackers steal emails and build profiles of CEOs or CFOs to tell convincing stories about the need to pay someone quickly that employees fall for. The only answers are to focus on validation and constant education and vigilance. It’s not glamorous, but it’s essential. 

Today over 15m Britons (1:3 of us) use Open Banking and with over 30m Open Banking payments per month, (up over 30% year on year) account-to-account payments have arrived. And following behind are continuous variable recurring payments (CVRPs), a simple alternative to direct debits. They can change the payments game for many smaller businesses. A small business selling subscriptions would no longer need to store card details or fight to get a direct debit mandate set up. With CVRPs, businesses can make sure they have been paid before they ship goods and consumers can easily manage their CVRPs. This flexibility creates opportunities for small firms and allows them to more effectively compete with larger businesses. All of which will pave the way for Open Banking to be used at points of sale (a long-term Bank of England aspiration). There is work to be done to improve the speed and user experience but expect pilots in 2026.

Cash may not be king, but it’s still royalty. Despite what many headlines say, ATM withdrawals rose in 2024. The issue is that digital payments are rising faster, but people use cash for lots of things that digital money can’t do. There’s an emotive quality to handling cash but it is also a great tool for budgeting, teaching children money skills. It is also that kind of “spare tyre” product: you may not need it every day but it’s there if you do. During recent power outages in Spain and Portugal, cash was an essential backup. When systems fail or there’s a power cut, your phone is only good as long as its battery lasts. When it dies, cash still works. You may not use it that often, but you’ll be glad it’s there when you need it.

Cross-border payments are still too slow, too expensive and not transparent enough. But there is good news. The payments sector is a highly networked one, and we are working together to help solve some of these challenges. And as a sector we are throwing real resources at fixing them.

NatWest is working as part of Project Agora with the Bank of International Settlements, seven central banks and 40 other commercial banks to tackle these problems. Collaboration is key.

If you want to go fast you can go alone, but if you want to go far, you have to go together.

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Against this backdrop, technology plays a mixed role. AI, data and digital innovation have been supporting trade growth. We have seen that especially with infrastructure, where funding and working capital flowing into fast-growth sectors, such as technology. At the same time, I’m cautious about predictions that tech will revolutionise trade finance. Real-world trade involves physical goods, complex documentation and multiple counterparties. Innovation continues, but it is gradual and focused. Improvements in fraud monitoring or logistics tracking, for example, are more likely than full digital transformation.

We need to be realistic about what tech can deliver. A few years ago, blockchain was going to change everything, but it hasn't. Change is likely to be more more piecemeal, with isolated wins rather than sweeping reform. The question every CFO or treasurer needs to ask is how any new technology is going to reduce risk, increase sales, cut cost or improve resilience. If it can’t do any of that, it won't get prioritised.

Another clear trend is the renewed focus on supply chain resilience. This has shifted massively since the pandemic. Five years ago, most CEOs didn’t see it as a board-level issue. Now they do. Supply chain disruption is no longer theoretical. It affects your ability to sell and grow. And the same is true for cyber security. These are increasingly linked to geopolitics and state-sponsored actors and CEOs ask about cyber resilience in the same breath as they ask about supply chain. These are board-level risks. 

It also adds unwelcome pressure on working capital. Interest rates remain high and inventory levels have risen, as businesses carry more stock to protect against disruption. Holding more stock costs money and requires funding. Businesses need to balance risk management with cash flow and cost of capital. This is changing working capital practices across sectors.

If there is one bright spot for 2026, it’s that the worst-case predictions about the economic impact of tariffs have not yet come true. Economists may still be right in the long run, but so far, the impact has been relatively modest. If we can manage to get through this without a major inflation spike, and with global trade volumes staying reasonably resilient in spite of turbulence, that would be good news.

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AI also has the potential to improve how small firms innovate. This matters because SMEs have historically underinvested in innovation, including AI. NatWest has been working with Google to encourage AI adoption, especially since research by Google shows that 59% of small business owners in the UK have paused game-changing ideas because they don't have time to bring them to life. If AI can help them carve out that time while also driving innovation itself, we could see the opening of entirely new markets and business models. 

In the wider world of tech, I’m expecting autonomous vehicles to hit UK streets in 2026. Lest we forget, part of Elon Musk’s $1trn compensation package from Tesla depends on the company’s ability to deploy one million robo-taxis over the coming years. In the UK, Waymo is coming to London and UK players like Wayve are ready to scale. That’s going to spark conversations about mobility, employment and how society adapts to automation. Driverless taxis in cities across the US are providing a first glimpse of how AI-based automation might affect an entire industry, and how human workers could co-exist with intelligent machines. 

We’ll undoubtedly see more wearables coming to the market, with increased take-up of gear such as smart glasses from the likes of Meta and Google, to health-focused devices like the Oura ring. In many ways this is a race to create the next mobile computing platform, and it’s all powered by AI. Either way, it demands carving out time to explore these trends, as they are a critical cultural lever and key to understanding how customer experiences may evolve in the future.

The tech will reach further into the workplace, with embodied AI from humanoid robots in warehouses to heads-up displays for delivery drivers. Amazon is currently piloting both in the US and they could be the norm in a few years. 

Meanwhile, defence tech is also accelerating, fuelled by geopolitical tensions and new applications of existing consumer and business innovations, most notably the use of drones in warfare.

In financial services, AI agents could soon be able to act on behalf of individuals, making purchases, comparing prices and initiating payments. This opens possibilities for convenience and transparency but poses questions of regulation and safety. The movement of money and offering of financial advice are rightly regulated spaces, and the role of advanced new technologies needs to be judged well. 

Blockchains are rapidly continuing to move away from hype and into the mainstream, and central banks are taking new positions worldwide. Here, the regulators will need to make key decisions about stablecoins and central bank digital currencies in the months ahead. In areas like programmable money, change (no pun intended) is coming rapidly. What matters now is how we shape it.

This new technology almost inevitably leads us to question our assumptions about resilience. Whether it’s data, those foundational AI models or fragile supply chains, there is more awareness of dependency and the risk this brings with it. From rare earth metals in China to critical chip infrastructure in Taiwan, sovereignty and resilience are no longer abstract concerns – they’re strategic necessities.

Quantum computing is also seeing advances, going beyond theory. Its applications will eventually bring exciting outcomes – in health, materials science medicine as well as in finance. However in 2026 the preoccupation should rightly be focused on technology’s likely impacts in encryption and cybersecurity, as the public keys that guard our data could be vulnerable to quantum algorithms.

The world is glimpsing over the near horizon, and I believe that 2026 will ring down the ages as the year we enter a new tech paradigm. It’s up to us to make the most of the opportunities we can see, and almost feel.

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