Written by Shane Balkham
Last week was challenging for UK and European equity markets. Focus remains on high oil prices, rising inflation and the prospect that interest rates may stay higher for longer. In the UK, shares fell -1.9%, as measured by the FTSE All-Share index, while European shares followed a similar pattern, with the MSCI Europe ex-UK index falling 2.2%, albeit both indices showed a slight recovery on Friday.
Oil remains the main source of concern for investors, with prices far above levels seen before the disruption around the Strait of Hormuz. This matters as higher energy costs can feed into both household bills and company expenses, which feeds into overall inflation. That was illustrated in Europe, as Eurozone inflation rose to 3.8% in September from 3.2% in August, with energy prices being the main contributor. This has increased expectations that the European Central Bank may raise rates again in December.
There was better news from the UK economy. Figures released on Wednesday showed that growth in the second quarter was revised up to +0.5%, following +0.6% in the first quarter, cementing the UK as the fastest-growing major economy in the first half of 2026.
On Friday, US employment data was published, with only 29,000 jobs added in September, well below expectations, and the US unemployment rate edged up to 4.2%. Figures for July and August were revised down by a combined 60,000 jobs, and annual wage growth slowed to 3.0%. The weaker report suggested that the US labour market is losing momentum, reducing expectations of an immediate interest-rate increase from the Federal Reserve. The softer jobs figures helped calm markets, with US Treasury yields (the annual return you earn from holding a bond) falling slightly, as the likelihood of an October Federal Reserve rate rise reduced.
The outlook remains uncertain, which highlights the importance of having an appropriately diversified portfolio which can benefit from the changing directions of the global markets. We are advocates of long-term investing, and volatile times such as these remind us of the importance of staying invested and not trying to time the markets.
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