Buy your holiday money now. The pound is in for a rocky year

Core Viewpoint - The British pound is expected to face significant challenges in 2026 due to various domestic factors that will limit its purchasing power abroad, particularly for holidaymakers [1][2]. Economic Outlook - The UK economy is predicted to have little or no momentum heading into 2026, primarily due to a £26 billion tax increase imposed by Chancellor Rachel Reeves, which is expected to hinder economic growth [4][5]. - The unemployment rate has risen to 5.1%, the highest in four years, and private sector pay growth has decreased to 3.9%, the weakest since 2020, indicating a weakening labor market [6]. Bank of England's Position - The Bank of England may need to lower interest rates further to support the economy and protect jobs, which could negatively impact the pound's purchasing power [7]. - Recent actions by the Bank included a reduction in interest rates from 4% to 3.75%, down from a peak of 5.25% in August 2024, which may lead to a shift of foreign investment away from UK assets [7]. Market Expectations - Money markets are anticipating another interest rate cut by the Bank of England by June, with a 50-50 chance of an additional cut by November, reflecting expectations of further declines in borrowing costs [8].