26 May 2026
Last week, Bank of England (BoE) Monetary Policy Committee (MPC) member Megan Greene warned that central banks could not dismiss ongoing supply shocks from the Iran war as temporary. This concern follows a major hit to private sector activity. While the Middle East conflict continues to drive energy prices higher, the domestic economy faces a rapid slowdown. Geopolitical uncertainty has fuelled worries about rising wholesale costs and energy bills, which heavily depress UK consumer sentiment, driving it to near-historic lows. Consequently, policymakers are likely to maintain an extended interest rate hold as economic growth fades and inflationary pressures remain stubbornly high, preferring to monitor long-term financial and economic stability rather than reacting solely to temporary, volatile economic data points such as monthly inflation figures or employment reports.
UK government bonds came under pressure as Aberdeen Investments reduced its extensive portfolio due to political uncertainty. Ten-year Gilt yields reached 5.06% on Wednesday as investors responded to accelerating producer prices. Markets now trim their BoE rate hike expectations following a sharper-than-expected slowdown in headline inflation, which dropped to 2.8% against a 3.3% consensus forecast. In equities, the FTSE 100 index finished the week relatively flat. This trend masked a significant underlying trend where selective UK investors continued their pattern of committing new capital primarily to US and global index-tracking funds, indicating a pronounced risk-off sentiment toward domestic equities. This preference came at the expense of traditional domestic UK active equity funds, which continued to see muted inflows as investors actively pursued broader diversification and sought greater exposure to international markets. In particular, the perceived growth opportunities within the S&P 500 and broader global indices. This sustained shift suggests a structural change in UK investor behaviour, prioritising passive global strategies over active domestic stock picking.
Across the Atlantic, macroeconomic data remained broadly supportive of risk sentiment as jobless claims remained subdued and housing starts beat market expectations. Technology stocks were mixed, driven by enthusiasm surrounding the continued Artificial Intelligence demand and positive corporate earnings headlines. United States Treasury prices were firmer with a flattening curve despite hawkish Federal Open Market Committee (FOMC) minutes that prompted markets to price in an October interest rate hike. Meanwhile, the US Dollar Index (DXY) was little changed on the week while gold prices finished down by 0.8%. Geopolitical developments remained central to sentiment as diplomatic negotiations over the intense Iran conflict progressed with optimistic headlines. This anticipation sent West Texas Intermediate (WTI) crude oil down sharply, closing 8.4% lower on the week.
On to the housing market, UK confidence remained strong in May, with Rightmove reporting average price increases of 1.4% to exceed historical trends following a 0.8% gain in April. However, rising mortgage rates reaching 5.75% are increasing pressure. This is reflected in sales activity, where the agreed transactions fell 4% below last year.
IG Group, an online financial trading platform specialising in spread betting and share dealing, saw its shares rise 20.68% last week. They reported a strong start to the year in their latest trading update, displaying a steady jump in trading activity and an increase in new customers. Investors also reacted positively as management upgraded its future revenue expectations, displaying strength in attracting users to its digital platforms. The company also announced a £125 million share buyback programme. This combination of customer growth and direct cash returns left the market optimistic about its medium-term prospects.
Babcock International, an engineering services company for nuclear, marine, and land defence projects, had a positive week with shares advancing 11.13%. The market responded well to the news that a major engineering partner was brought on board to help deliver complex defence contracts, and the increased earnings forecasts put forward by analysts. With global defence spending on the rise, investors were reassured by the company's cash generation and a £200 million share buyback programme, viewing the stock as a reliable player within its sector.
Auto Trader, the UK’s largest online automotive marketplace for buying and selling vehicles, saw its share price falling 7.49% last week. Investors reacted negatively to a trading update that missed expectations and showed slowing growth. Although the company posted an increase in profits, the market focused on underlying challenges, such as the company’s “Builder Product”, a recently launched advertising product with management noting its unpopularity with car dealers, leading to cancelled subscriptions and flat revenues in recent months. This friction with its core customer base made investors cautious about the company's immediate outlook. A £500 million share buyback programme was not enough to offset market concerns regarding persistent headwinds in the broader automotive sector.
Market Commentary prepared by Walker Crips Investment Management Limited.
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No news or research content is a recommendation to deal. It is important to remember that the value of investments and the income from them can go down as well as up, so you could get back less than you invest. If you have any doubts about the suitability of any investment for your circumstances, you should contact your financial advisor.
The value of investments can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable indicator of future results.
The value of investments can fall as well as rise. Investors may get back less than invested.
