As we set our sights on 2026, it’s worth remembering Mark Twain’s humorous observation: “Prediction is difficult – particularly when it involves the future.”

Despite this challenge, we must make informed decisions about our future, encompassing investments, careers, mortgages, relocation, and the myriad other components of everyday life.

Reflecting on the past year, great credit is due to those who maintained confidence in the stock market. The 4.1 million individuals who invested in a stocks and shares ISA during the financial year ending last April have plenty of reasons to feel satisfied.

It’s hard to recall any investment analysts from a year ago who foresaw the FTSE 100 index climbing by 21.5% in 2025 or surpassing the 10,000 mark within the opening hours of trading in 2026.

This scenario sets the stage for the current year, where we might again witness a divergence between economic trends and investment returns. Unfortunately, there’s little optimism on the growth horizon.

In the best-case scenario, our economy might inch forward by 1 to 1.5%, while the worst-case scenario sees no growth at all. It seems likely that unemployment will rise.

Big decisions: Given what has happened over the past year, hats off to everyone who kept faith in equities 

Will sluggish housing market pull down the economy? 

It’s quite possible that there will be some kind of crisis – a run on the pound or a surge in gilt yields – that will force Rachel Reeves to resign. The bookies give her a less than even chance of surviving the year in office.

But it’s perfectly possible that, despite economic gloom and political chaos in the UK, global equities will do quite well, and we get pulled up with the pack.

The key point is that there is hardly any connection between what happens to our economy and how the share prices of our giant companies perform. Often there is an inverse relationship, in that a weak economy leads to cuts in interest rates, which on balance will boost equities.

So the general view of market analysts that the Footsie will climb by 10 to 12 per cent this year seems reasonable. Bull markets don’t go on forever. 

There will be a global recession somewhere in the future, but meanwhile UK shares still look cheap by world standards.

I’m more worried about the housing market. Sure, interest rates will come down a bit, but they can’t by much because inflation will remain high. The drag is that the Chancellor is conducting an experiment – stick a new levy on more expensive property and see what happens to prices.

There are estimates that the mansion tax will knock £50,000 off homes caught by it, but no one really knows. Nor do we know how far the impact will trickle down to cheaper properties.

One thing is certain, though: wealth is already being destroyed. So the question then is whether a sombre housing market will pull down the wider economy. In one sense, cheaper homes are welcome: young people need affordable places to live.

But we want a plateau so wages gradually catch up with prices, not a crash. We certainly don’t need negative equity trapping people unable to move home.

There are two other great unknowns. One is the impact artificial intelligence will have. Long-term it may well create jobs; short-term it kills them.

It has helped make the hiring season for graduates the toughest since the pandemic, and if you spend four years getting a degree to find you are unemployed, that blights your entire career.

The additional tax and regulatory burdens on employers have made a bad situation worse. It would be nice to think that the clouds over the job market will lift, but I fear they will darken.

The other puzzle is how the US performs on the 250th anniversary of the Declaration of Independence. Its economy has been puffed up by Donald Trump’s expansionary fiscal policy.

The new chair of the US Federal Reserve Board, to be announced this month, will push for lower interest rates too. So growth continues for a while yet. Maybe a year of two halves: a solid run through to the celebrations of the July 4, then a hangover?

And for us? We have to work with the Government we’ve got. It’s no fun right now, but managing our finances is a long game.

For the prudent, 2025 was not a bad year. My instinct is that 2026 will be OK too.

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