Global stock markets had started 2026 in a positive mood following a strong 2025, with the possibility of further gains driven by advancements in Artificial Intelligence and anticipated rate cuts. Concerns remained around elevated valuations, particularly in the tech sector, and the unpredictability of the current US administration.
The Iran conflict has since introduced significant volatility, with rising energy costs threatening to reverse the downward trajectory for both inflation and interest rates. Markets across the US, Europe and Asia have all seen substantial falls. By 23 March, the FTSE100 index had dropped by 11% from its February high, placing it in correction territory. In the US, the Dow Jones Industrial Average had seen a less severe fall of around 5%, with the S&P500 falling by around 4%.
The longer-term impact is very much dependent on the length of the conflict, with a speedy resolution likely to mean a market recovery but a prolonged engagement leading to lasting economic consequences.
The Federal Reserve (Fed) held the key federal funds rate at a range of 3.5% to 3.75% earlier this month, following a previous cut in December. The Fed faces a tricky combination of rising prices and mixed signals from the job market, with additional risks from tariffs and the recent spike in oil prices. US inflation, as measured by CPI (Consumer Price Index) figure, held steady at 2.4% in February 2026, matching January’s level.
On 20 February, the US Supreme Court had struck down the tariffs imposed by President Donald Trump last April, although he immediately announced blanket worldwide tariffs of 10%, with plans for an increase to 15%.
Citing the potential economic impact of the Iran conflict, the Bank of England (BoE) also chose to “wait and see” at the March meeting of its Monetary Policy Committee. The BoE base rate was held at 3.75%, with the Bank having previously been expected to announce a further cut. Inflation (CPI) in the UK fell to 3.0% in January 2026 and remained at this level in February. The Bank highlighted that energy supplies could remain more fragile and costly for some time, even if the Iran conflict is resolved quickly, with a knock-on impact on inflation.
In Japan, equity markets had soared to fresh highs during February, amid expectations of looser fiscal policy. Sanae Takaichi, elected in October as the first female Prime Minister of Japan, stated that she intended to pursue a “responsible and proactive” approach to public finances. The Nikkei225 index subsequently dropped by over 12%, with Japan dependent on the Middle East for more than 90% of its crude oil imports.
Meanwhile, research published by the Skipton Group in its March 2026 Home Affordability Index has confirmed that the average age of a first-time buyer in England has climbed to 34, an increase of 5 years since the mid-1990s. More than half of first-time buyers now need to purchase as a couple, with both incomes needed to make the purchase a reality.
We are always available to discuss any queries or concerns, so just call or drop us an e-mail.
This article is for information only and should not be construed as advice or a recommendation. You should always seek independent financial advice prior to taking any action.
The value of your investment can go down as well as up and you may not get back as much as you originally invested.