Conflict in the Middle East drove market volatility throughout March 2026, as rising energy prices and renewed inflation concerns led investors to reassess expectations for central bank interest rate cuts.
UK
- The Bank of England (BoE) held interest rates at 3.75% for the second consecutive meeting, amid concerns of energy prices passthrough to inflation.
- UK inflation remained at 3% for the year to February (same as January), with energy prices expected to add upward pressure in coming months.
- The UK Composite PMI (an indicator of business activity) remained in expansion territory (50.3) but fell from February (53.7).
- UK equities (FTSE 100) ended the month lower (-6.2%), as geopolitical uncertainty and higher bond yields outweighed gains from energy-related sectors.
- UK unemployment held steady at 5.2% whilst wage growth slowed to 3.8%, its slowest in five years, reflecting softening in labour market conditions.
Global
- Global equities declined sharply in March (-5.4% for the MSCI ACWI) as the Middle East conflict escalated, triggering a broad risk-off move.
- The Federal Reserve (Fed) held interest rates steady at 3.5%–3.75%, pushing back on the likelihood of rate rises but maintaining data dependency.
- US equities fell over the month, led by weakness in growth and technology stocks as expectations for near-term interest rate cuts were reduced.
- In Europe, the ECB left policy rated unchanged, whilst equities declined sharply on the implications of higher energy prices and softer growth figures.
- Japanese equities declined sharply in March as higher energy prices and rising yields offset earlier optimism around supportive domestic policy.
- Emerging market equities ended broadly lower as the Iran conflict exposed vulnerabilities tied to energy import dependence and currency depreciation.
Fixed Interest
- Global government bonds experienced a broad selloff as concerns around oil-driven inflation pressures forced a reassessment of global monetary policy.
- UK bond yields surged, with the 10-year gilt yield hitting its highest level since 2008 as markets repriced the inflation outlook. 10yr Gilt yield closed at 4.86%.
- US Treasury yields also moved higher as markets pushed out expectations for rate cuts.
- Among corporates, high-yield bond spreads widened more than investment grades in both the U.S. and overseas markets.
Other
- Sterling was broadly stable against major currencies despite intra-month volatility. GBP/USD ended at 1.32. GBP/EUR ended at 1.14.
- Oil prices spiked (+50%) during March, briefly exceeding $110 per barrel (Brent) due to Middle East supply disruption concerns.
- Gold had its worst monthly return since June 2013 (-12%), as investors took profits after a strong rally and higher bond yields shifted its relative attractiveness.
Would you like a second opinion on your investment performance? Get in touch by calling 03300 564 446, or use our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
