Introduction
April felt a lot like March for investors. Developments in the Middle East continued to dominate headlines, and markets reacted quickly, sometimes daily, to changes in the outlook for energy supply and geopolitical risk. Oil prices remained elevated, and with higher energy costs feeding into supply chains, inflation concerns returned to centre stage.
What may have surprised some investors was how resilient markets proved to be. When fears of further escalation eased, even briefly, global equities responded positively. US markets traded close to record levels, while the FTSE 100 recovered a large portion of its March losses, supported by strong performance from energy stocks.
Looking ahead, markets remain highly sensitive to events in the region. With the durability of recent stabilising signals still uncertain, volatility is likely to remain a feature of the weeks ahead.
Against this backdrop, the world’s major central banks — the Federal Reserve, the Bank of England and the European Central Bank — all left interest rates unchanged during April. Even so, the conversation has clearly shifted. Instead of asking when rates might be cut, markets are now debating whether persistent energy‑driven inflation could eventually force policymakers back toward tighter policy.
UK inflation rose to 3.3% in March, and central banks are becoming increasingly focused on the risk that higher input costs including fertiliser prices, which remain well above early‑year levels, may filter through to food prices later on.
As always, the range of possible outcomes remains wide. But once again, April showed the value of staying invested and avoiding knee‑jerk reactions to unsettling headlines.
United States
April was a volatile month for US markets. Early weakness reflected concern over the risk of prolonged disruption to global energy supply routes. That was followed by a sharp rebound as near‑term fears eased and investors regained confidence.
By mid‑month, US equity markets were trading close to record levels. This recovery highlighted how quickly sentiment can change when the immediate risk of escalation recedes, even if the longer‑term picture remains uncertain.
The Federal Reserve held interest rates steady in April. Policymakers made it clear that future decisions will depend on how inflation, energy prices and economic data evolve. While no immediate policy changes are expected, the message was one of flexibility with neither rate cuts nor increases ruled out.
Higher energy prices continued to be felt across the economy. US petrol prices remain well above pre‑conflict levels, while airlines and logistics firms have introduced fuel surcharges in response to rising costs. International agencies estimate that recent events have led to one of the most significant short‑term oil supply disruptions seen in decades, despite efforts to reroute exports.
Trade policy also remains an area to watch. Temporary tariff measures are still in place, and upcoming diplomatic meetings are seen as possible catalysts for greater clarity. Until then, trade‑sensitive parts of the market are likely to remain unsettled.
United Kingdom
UK markets staged a partial recovery in April after March’s weakness, although the overall picture remains fragile. The FTSE 100 rose as sentiment improved early in the month, before giving back some ground as uncertainty returned. The index remains below its February peak.
Energy stocks continued to lead the market, while more domestically focused areas such as banking, travel and leisure struggled to keep pace.
The Bank of England held Bank Rate at 3.75% in April. While most committee members supported no change, accompanying commentary acknowledged that inflation risks have increased, particularly if energy prices stay elevated for longer.
UK inflation rose to 3.3% in March, largely driven by fuel costs. The Bank’s projections highlight a wide range of possible paths from here. In more challenging scenarios, inflation could remain above target well into the latter part of the decade.
One development that deserves particular attention was the rise in the 10‑year gilt yield above 5%, the first time this has happened since the financial crisis. This reflects higher inflation expectations, concern about public finances, and expectations that interest rates may need to remain higher for longer. For households, this matters because mortgage rates are driven by future rate expectations, not just today’s Bank Rate.
While targeted energy support remains under discussion, slower growth and rising borrowing costs limit the scope for large‑scale fiscal intervention.
Europe
European markets broadly followed the same pattern as the UK: an initial rally early in April, followed by renewed caution. The European Central Bank held its deposit rate at 2.0%, while acknowledging that inflation risks have become more finely balanced.
Eurozone inflation picked up to 3.0% in April, driven almost entirely by energy prices. Encouragingly, core inflation remained stable, suggesting that broader price pressures have not yet become entrenched.
Economic growth in the euro area slowed in the first quarter of 2026, with only a small number of countries recording outright declines. The ECB now expects below‑trend growth for the year as a whole, with energy disruption the main downside risk.
Markets are increasingly pricing in the possibility of rate increases later in the year if inflation proves persistent. Policymakers face a difficult task: responding to volatile energy costs while avoiding unnecessary damage to already‑fragile growth.
Gas markets remain tight. Storage levels entered the summer refill season from a relatively low base, and damage to major LNG facilities has reduced global supply capacity. These factors suggest continued pressure on European energy markets over the medium term.
Far East
China continued to feel the effects of higher energy prices during April, although strategic stockpiles have helped soften the immediate impact. Longer‑term investment in renewables and domestic energy production has improved resilience, but sustained disruption would still squeeze margins in energy‑intensive industries.
Trade discussions with major partners continue, and upcoming meetings may provide some clarity. However, expectations remain modest, particularly around sensitive technology‑related issues.
China’s growth target for 2026 already looked challenging before recent events, and the current environment has made the task harder. While industrial modernisation remains a key long‑term goal, near‑term economic headwinds are significant.
Japan and South Korea remain especially exposed to energy price movements. In Japan, policymakers have highlighted how sensitive inflation is to oil prices, while exporters have benefited from a weaker currency. In South Korea, government support measures and strong performance in technology stocks helped underpin markets into early May.
Emerging Markets
The divergence between emerging markets widened further in April. Resource‑rich countries benefited from higher commodity prices, while energy importers faced growing inflation and fiscal pressure.
India continues to juggle higher energy and fertiliser costs, with government measures aimed at shielding households adding strain to public finances.
Lower‑income economies with limited foreign‑exchange reserves remain particularly vulnerable. For these countries, higher energy prices force difficult trade‑offs between affordability, inflation control and financial stability.
Global demand for oil is now expected to slow meaningfully in 2026, with some agencies forecasting a sharp contraction in the second quarter, one of the steepest outside of extreme crisis periods.
Summary
April once again showed how powerfully expectations can move markets. Even a temporary improvement in sentiment was enough to lift risk assets, despite ongoing disruption to energy markets and a more cautious tone from central banks.
For UK households and investors, rising gilt yields and mortgage costs are the most immediate concern, while inflation is likely to remain an important theme through the rest of the year. The Bank of England’s decisions over the coming months will be closely watched.
The core message, however, remains the same. Short‑term shocks can be unsettling, but history consistently shows that staying invested, maintaining diversification, and keeping a long‑term perspective tends to be rewarded. While risks remain, it is equally important to remember that outcomes may prove less severe than current headlines suggest.
And finally…
There’s a long‑standing tradition that each new monarch faces the opposite direction to their predecessor on coinage. King Charles III therefore faces left, following Queen Elizabeth II, whose portrait faced right.
There has only been one exception. Edward VIII insisted his portrait face the same direction as his father, George V. However, following his abdication, no coins bearing his image entered circulation, and the tradition resumed with George VI.
