October 2026

UK

Pressure on the Chancellor: against a backdrop of surging bond yields and higher oil prices, UK investors became increasingly preoccupied by the possible measures that might be contained in the Labour government’s forthcoming Budget on 28 October. Inflationary pressures drove up government borrowing to £18.3 billion during August, compounding pressure on Chancellor of the Exchequer John Healey. 

Triple lock set to end: Prime Minister Andy Burnham revealed plans to remove the triple lock on UK state pensions from 2030, replacing them with a double lock alongside a link to earnings. Meanwhile, shares in UK housebuilders and building materials companies rose during September as the government announced a new scheme – “Your First Home” – to support first-time buyers. Over September as a whole, the FTSE 100 Index fell by 2%, while the FTSE 250 Index rose by 2.4%. Elsewhere, the ten-year gilt yield ended the month at 5.43%.

Bank of England holds rates steady: the annualised rate of consumer price inflation rose at its fastest rate since March during August: higher fuel costs drove it up from 2.9% to 3.1%. According to the Office for National Statistics, average petrol prices reached their highest level since November 2022. Bank of England (BoE) policymakers held UK interest rates at 3.75% at their September meeting, bucking a broader trend that saw central banks in the US, Japan, and the eurozone increasing their rates. Looking ahead, however, tightening may be on the horizon: the BoE increased its UK inflation forecast to “slightly over 4%” in early 2027, and three of the nine members of the Monetary Policy Committee voted in favour of an increase of 25 basis points. The BoE increased its UK inflation forecast to “slightly over 4%” in early 2027, and BoE Governor Andrew Bailey warned: “It is likely that policy may have to tighten”.

Better-than-expected economic growth: the UK economy expanded by 0.4% during July, compared with growth of 0.3% in June and no growth in May. Over the three months to July, it posted growth of 0.4%. Hot weather and the FIFA World Cup boosted activity. The Organisation for Economic Cooperation & Development (OECD) upgraded its forecast for UK economic growth this year from 0.9% to 1.1% but downgraded its 2027 forecast from 1.1% to 1%. The OECD does not anticipate higher rates in the UK this year. 

Global

Bond yields hit multi-decade highs: the global bond selloff continued into September, stoked by unresolved conflict in the Middle East and the inflationary impact of high oil prices. During the month, the price of a barrel of Brent crude oil rose above US$100 once again, climbing as high as US$109.97. The yield on the ten-year US Treasury bond ended the month at 5.29% – its highest level since 2002 – while the yield on the 30-year Treasury bond hit levels last seen in 2004. Elsewhere, the yield on the ten-year German Bund reached its highest level since 2009. The Organisation for Economic Cooperation & Development warned: “Further increases in long-term sovereign bond yields are an increasingly important risk.” Although the OECD upgraded its forecast for global growth this year from 2.8% to 2.9%, it cautioned that the economic outlook is “heavily dependent on whether a durable resolution to the Middle East conflict is achieved.”

Hawkish Fed: the Federal Reserve (Fed) raised interest rates for the first time since July 2023, increasing the key federal funds rate by 25 basis points to a range of 3.75% to 4%. Most Fed policymakers expect rates to rise again before the end of this year. Fed Chair Kevin Warsh commented: “Inflation is too high and has been for too long”. The rate of consumer price inflation accelerated to 0.4% during August compared with 0.1 % in July but remained unchanged at 3.4% on an annualised basis. While the Dow Jones Industrial Average Index fell by 4.3% over September, the Nasdaq Index rose by 1.9%.

Eurozone inflation remains a challenge: the European Central Bank (ECB) raised interest rates from 2.25% to 2.5%, citing the impact of higher inflation, which “is set to remain well above target for an extended period”. The Dax Index fell by 4% over September. ECB policymakers expect inflation to average 3% this year and 2.5% next year. ECB President Christine Lagarde commented: “We are determined to deliver on our target.” 

Yen weakness persists: the Bank of Japan increased its key interest rate from 1% to 1.25% in September. Although the annualised rate of core inflation edged down from 1.8% to 1.7% in August, core inflation remains near the BoJ’s 2% target. Despite the central bank’s tightening activity, the yen remained weak against the US dollar. The Nikkei Index rose by 0.7% over the month.