Market Commentary
March 31, 2026

Market Commentary: March 2026

President Trump has once again dominated the headlines, with a strike on Iran at the very end of February whose implications are yet to be fully understood. The news drew some attention away from the UK government’s latest difficulties — a by-election loss to the Green Party and a mixed bag of economic results. Meanwhile, the FTSE 100 rumbles on, having hit new highs in February while shrugging off global concerns about politics and artificial intelligence. It now has a potential energy crisis to navigate.

UK

Chancellor Rachel Reeves delivered on her promise that the Spring Statement would be a fiscal non-event, containing no policy changes and little in the way of good news. The Office for Budget Responsibility (OBR) downgraded its growth forecast for 2026 to 1.1%, down from the 1.4% projected in November 2025. Growth projections now stand at 1.1% in 2026, 1.6% in both 2027 and 2028, and 1.5% in both 2029 and 2030.

The OBR tends towards caution in its forecasts, so it is not unreasonable to expect the predictions to be beaten. Notably, however, they do not yet account for any increase in oil and energy prices triggered by recent events in Iran and the Middle East — it remains too early to assess the full consequences for global economies.

Unemployment is predicted to peak at 5.3% this year before falling to 4.1% by 2030. It had already reached 5.2% in the three months to December 2025, a five-year high. On inflation, the OBR believes the fall will be faster than previously thought, expecting it to reach 2.3% during 2026 and hit the Bank of England’s 2% target by the start of 2027.

As a result of this, and stronger-than-forecast tax receipts, the Chancellor’s fiscal headroom has increased from £21.7bn to £23.6bn. Welcome news — but it remains a fragile buffer. Previous chancellors have operated with a higher margin for error, and political turbulence at home and abroad can quickly erode that headroom. Reeves confirmed she is on track to meet her main borrowing target in 2029-2030, with over £23bn to spare, though in reality some fortune along the way will be needed.

Inflation fell to 3% in January, with food prices a major driver of the reduction — important politically, as food costs are felt directly in voters’ pockets.

The Bank of England’s Monetary Policy Committee held its base rate at 3.75% after a narrow 5-4 vote, with strong hints of further cuts to come. Governor Andrew Bailey noted that inflation is now expected to fall back to around 2% by spring, adding that all going well there should be scope for some further reduction in bank rate this year. The consensus among forecasters is now for a cut in March or April, followed by another later in 2026.

The UK recorded a record monthly budget surplus of approximately £30.4 billion in January 2026, driven by strong income and capital gains tax receipts. January is always a strong month for tax revenues, but this still came in ahead of forecasts and has reduced expected borrowing for the year.

UK equity markets have been performing strongly. The FTSE 100’s impressive 2025 run has continued into 2026, benefiting from investors diversifying away from tech-heavy US markets. It hit 10,000 points on 2nd January — only 171 days after reaching 9,000 on 15th July 2025, the shortest time to move between 1,000-point milestones since the index launched. By the end of February it was already closing in on 11,000, having ended at 10,910.55 on 27th February. A new record appeared imminent, until the US-Israeli attack on Iran raised the prospect of an energy and oil price crisis.

Concerns about the underlying economy persist. Unemployment is creeping up, particularly among young people, and growth remains relatively sluggish. Mortgage rates, which had been falling for months, have ticked back up in anticipation of the Bank of England holding rates — reflecting volatility in swap rates, which ultimately drive mortgage pricing more than the base rate itself.

United States

On Friday 20th February, the Supreme Court declared many of President Trump’s trade tariffs unlawful due to the way in which his executive powers were used. The President responded by announcing a new 10% global tariff under Section 122 of the Trade Act of 1974 — a provision that allows tariffs to be imposed for 150 days without Congressional approval. The following day he revised this to 15%, before returning to 10% by Tuesday. Markets reacted with predictable volatility to this latest unpredictable turn.

Trump’s attention then shifted to Iran. Negotiations had briefly appeared to be moving towards a compromise over Iran’s nuclear stockpile, with Iran reportedly offering economic incentives including access to oil and gas reserves and purchases of US products, alongside a significant reduction in nuclear materials. This appears to have been interpreted as a delaying tactic, and the US launched an attack on 28th February, resulting in the death of Supreme Leader Ayatollah Ali Khamenei. Israel played a significant role in the operation. Qatar, Bahrain, Jordan and Kuwait — all home to US military bases — intercepted missiles fired towards them, though falling debris appears to have caused widespread damage.

As with the ‘Liberation Day’ tariff announcements of March 2025, the President once again made a major move on a Saturday when financial markets were closed — a pattern that has now repeated several times.

US GDP growth slowed sharply at the end of 2025, with Q4 expanding at just 1.4% annualised, down from roughly 4.4% the prior quarter. Optimists, including the President, point to the government shutdown as a key cause and expect a recovery in 2026. Underlying consumer and investment data offers some support for this view, but many investors are mirroring the Federal Reserve’s watch-and-wait approach given ongoing uncertainty around government policy and AI-related technology stocks.

US tech stocks remain under pressure. Nvidia’s results outperformed market expectations, yet such is the expectation built into its valuation that there was no immediate uplift in its stock price. Broader concerns persist that AI infrastructure investment may not generate cash returns for investors that justify current valuations. Companies such as Salesforce have also seen value eroded by speculation that AI will replace rather than enhance their products, while sectors including transport, logistics and financial services are wrestling with questions about whether AI will ultimately make parts of their businesses obsolete.

The market does not yet have a clear view on the long-term impact of AI — who the winners will be, and whether it will strengthen or dismantle the commercial models of other sectors. This uncertainty will continue to generate volatility well beyond technology stocks.

Europe

Cautious optimism continues to characterise the economic picture in the Eurozone. As with the UK, Europe is benefiting from a broader investment appetite to diversify slightly away from US markets.

Eurozone inflation fell to 1.7% in January — below the European Central Bank’s 2% target — and the ECB held rates, pointing to low unemployment, solid private sector balance sheets, and the gradual rollout of defence and infrastructure spending as supports for growth. Borrowing costs are falling and may ease further in 2026, improving visibility for businesses over costs and pricing.

Growth is still expected to be modest, but early signs are emerging that Germany’s defence and infrastructure spending is beginning to produce results, with similar effects expected in France and the Netherlands.

In France, the budget situation remains unresolved. The Prime Minister invoked Article 49.3 to pass a revised 2026 budget without a parliamentary vote, scaling back spending-reduction ambitions in the process. This year’s budget will do little to reduce the government deficit relative to GDP.

While the EU has demonstrated considerable resilience and completed two significant trade agreements — with India and Mercosur — global trade tensions continue to cast a shadow over the outlook.

Far East

China is approaching its annual Two Sessions meetings, beginning 4th March, at which Beijing will formally set its 2026 GDP, fiscal and monetary targets. Markets had been focused on expectations that the growth target might be lowered to “above 4.5%” rather than the “around 5%” target of recent years — not a surprise given that Purchasing Managers’ Index data has shown contraction for several months. This will also mark the 15th Five-Year Plan, setting the direction for China’s development through to 2030.

The IMF has reiterated the well-understood challenge facing China: it must improve domestic demand and shift away from a reliance on exports towards domestic consumption.

In Japan, following Prime Minister Sanae Takaichi’s landslide election win, she nominated candidates with a more accommodative stance to the Bank of Japan’s board — weakening the yen and raising questions about the pace of future rate rises. However, hawkish board member Hajime Takata has warned that policymakers must remain alert to the risk of inflation overshooting and continue raising rates gradually. Whether his minority view gains broader support over time remains a key question for global markets, particularly emerging economies.

Emerging markets

Emerging markets continue to attract investor interest while US equities remain unpredictable. India has been a focal point given its high-growth economy, but it is far from alone.

Taiwan and South Korea are key players in the AI supply chain. South Korea’s performance is driven by chipmakers such as Samsung Electronics and SK Hynix, which are benefiting from strong global demand for AI-related memory and advanced semiconductors. Taiwan dominates advanced semiconductor production, with technology-related goods now accounting for roughly 80% of its exports.

Commodity markets have favoured economies including Brazil and Peru, which have benefited from metals and agricultural demand. Thailand and Turkey have been helped by improved financial conditions and cyclical recovery.

As March develops, the extent to which the US conflict with Iran creates new risks and opportunities across emerging markets will become clearer.

Summary

The US-Israeli strike on Iran adds another layer of complexity to the political economics of 2026. The risk of soaring oil prices is real — prices were already rising before the strikes took place. In January, Iran produced 3.4 million barrels of crude oil per day, representing around 3% of global supply, much of which has been flowing to China via shadow fleets to evade sanctions. What happens next to that supply — and to the governance of the country — remains uncertain.

The past 12 months have reinforced a familiar lesson: volatility in financial markets is a constant, but for investors prepared to stay the course, the rewards can be notable.

Sources and further reading

Disclaimer: information is based on publicly available data and government announcements at the time of writing (March 2026) and may be subject to change.

Risk statement: The financial information contained within this article is our opinion and for guidance only, and does not constitute advice which should be sought before taking any action or inaction. The value of your investments (and any income from them) can go down as well as up. The Financial Conduct Authority does not regulate estate planning, tax advice, cashflow planning, powers of attorney, or wills.