Pound outlook may weaken and affect holiday money

The article reports the Chancellor's November Budget included about £26bn of tax rises and that the Bank of England recently cut interest rates to 3.75%, facts analysts say could weigh on the pound in 2026.

The pound is expected to face headwinds in 2026, which could reduce how far UK income stretches on overseas trips. Analysts link the outlook to domestic policy and economic indicators. The Chancellor's November Budget included roughly £26bn of tax rises, and the Bank of England has begun easing monetary policy. These developments are presented as reasons the currency may be weaker than it was over the past year. Key developments: - The November Budget included about £26bn of tax increases, reported as weighing on growth. - Unemployment rose to 5.1% in the three months to October, and private sector pay growth slowed to 3.9%. - The Bank of England lowered its policy rate from 4% to 3.75% last month. - Money markets are pricing a likely further rate cut by around June, with some chance of another cut by November. Summary: These factors are reported as combining to limit the pound's purchasing power in 2026 and to reduce returns on UK assets for some investors. Further Bank of England decisions on interest rates and near-term labour market data are presented as the main developments to watch; the timing of any additional policy moves is reflected in market pricing and remains undetermined at this time.