Charting the global economy in 2026

With inflation predicted to cool, rising unemployment, weak growth and trade tensions pose fresh risks, while high debt and AI add to uncertainty in the year ahead

- By Richard Partington

The global economy proved to be more resilient than feared in 2025, avoiding recession in most major economies, despite severe headwinds that ranged from Donald Trump's trade war, to geopolitical tensions and the conflicts in Ukraine and the Middle East.

Entering the new year, the hope is that the worst of the recent inflation shock has passed, as the world's most powerful central banks lower interest rates closer to more normal levels. However, the pre-Covid age of rock-bottom borrowing costs is an increasingly distant memory, global growth is slowing and conditions remain fragile.

Here are some charts underpinning the economic outlook for 2026.

Inflation cools but risks remain

Households have faced a severe cost-of-living squeeze from inflation sticking at elevated levels, but the hope is for a marked slowdown in the rate of consumer price growth in 2026.

Economists are predicting a "normalisation" of inflation across rich countries, paving the way for central banks to end their cycle of interest rate cuts - in effect lifting a restriction on the economy from higher borrowing costs.

In the US, the term of the Federal Reserve chair, Jerome Powell, ends in May. The focus will be on whether Powell's replacement will oversee deeper rate cuts amid political pressure from Trump. Fears over interference from Washington are also expected to weigh on financial markets.

Britain risks standing out as a disinflation laggard. In the autumn, the International Monetary Fund forecast the UK would suffer the highest inflation in the G7. However, that was before Rachel Reeves's budget, which the Bank of England expects could sink the headline rate close to its 2% target by the summer.