August 2026

UK

Domestic and international uncertainty: July saw UK investors navigating a shifting landscape, which domestic political developments, doubts about the long-term strength of the AI boom, and renewed tensions in the Middle East all competed for attention. Renewed conflict between the US and Iran drove up the yield on the ten-year gilt to over 5% for the first time since May. Meanwhile, the price of Brent crude oil climbed above US$100 per barrel, stoking concerns over the outlook for inflation. Over July, the FTSE 100 Index rose by 3.5%, while the FTSE 250 Index climbed by 4.2%.

“Good growth in every postcode”?  Andy Burnham replaced Keir Starmer as leader of the Labour Party and therefore became the UK’s seventh Prime Minister in a decade. In his first speech, he promised “a new political model and a new economic model.” Gilt yields rose on Mr Burnham’s first day in office amid uncertainty over economic policy. He appointed John Healey to replace Rachel Reeves as Chancellor of the Exchequer, and the autumn Budget was set for 28 October. Andy Burnham also announced a range of measures, including a 20% cut to business rates for pubs, social clubs, and live music venues. The British Chambers of Commerce responded: “Any action on rates is long overdue and very welcome” but went on to warn: “The time for tinkering around the edges has long gone.” 

Spotlight on the triple lock: the new Prime Minister faces a range of economic and fiscal challenges; in particular, the Office for Budget Responsibility warned that maintaining the triple lock uprating on the state pension is likely to prove unsustainable – a view echoed by the Organisation for Economic Cooperation & Development.

Short-term dip in inflation: the Bank of England (BoE) maintained its key base rate at 3.75% in July. Six members of the Monetary Policy Committee voted in favour of leaving rates unchanged, while three voted for an increase to 4%. The annualised rate of inflation eased from 2.8% in May to 2.6% in June, dampened by lower prices for food and fuel, but the BoE expects inflation to rise over the rest of this year, bolstered by high energy prices. Elsewhere, having contracted by 0.1% in April, the UK economy grew by 0.1% in May, boosted by activity in the services sector.

Global

Middle East conflict reignites hopes that the US and Iran would agree terms over a ceasefire drove the price of a barrel of Brent Crude oil below its pre-war level early in July. However, relations between the two sides quickly soured and the peace deal collapsed, leading to fresh conflict in the region. The ten-year US Treasury yield hit its highest level since January 2025; meanwhile, the oil price breached US$100 per barrel for the first time since May but ended July below US$90 following another break in hostilities.

Questions over the AI boom: investors became increasingly concerned over the pace and scale of AI spending. The technology-rich Nasdaq Index fell by 3.2% over the month, while South Korea’s KOSPI plummeted 22.2%. While Microsoft released strong second-quarter earnings, Facebook’s parent company Meta and US chip manufacturer Qualcomm reported weaker results. 

Inflation remains firmly on the agenda: although the annualised rate of US inflation moderated in June from 4.2% to 3.5%, the subsequent resumption of hostilities in the Middle East is likely to have fuelled inflationary pressures in July. Federal Reserve (Fed) Chair Kevin Warsh said: “The members of our Committee have no tolerance for persistently elevated inflation.” The Fed maintained its key interest rate at 3.5% to 3.75% in July; while nine policymakers voted for no change, three voted for an increase. The Dow Jones Industrial Average Index edged 0.3% higher during July. 

ECB holds rates: after raising interest rates in June, the European Central Bank (ECB) left rates unchanged in July; however, ECB President Christine Lagarde warned: “The full inflationary impact of the energy shock has yet to play out.” Eurozone inflation rose from 2.8% in June to 2.9% in July. The ten-year German government bond yield hit its highest level since 2011 in July, while the Dax Index rose by 2.5%. 

Yen intervention: the Bank of Japan maintained its key interest rate at 1% and warned that core inflation was likely to accelerate to a level “clearly above” its 2% target. Following months of weakness, the yen surged against the US dollar at the end of July; the Minister of Finance subsequently confirmed that Japan and the US had jointly intervened as the yen fell to fresh lows. The Nikkei 225 Index declined by 8.1% over the month, dampened in part by its exposure to technology companies.