7 April 2026
UK markets faced a sharp deterioration in sentiment in the final week of the tax year, as escalating tensions around the Iran conflict weighed heavily on business confidence. The Institute of Directors (“IoD”) index fell to a record low, reinforced by survey evidence from the Institute of Chartered Accountants in England and Wales (“ICAEW”), highlighting a rapid deterioration in corporate outlook. Inflation risks intensified, driven by surging energy prices, with analysts expecting the energy price cap to rise by 18% in July. Food inflation is also projected to accelerate to 9% by year-end from 3.3%, adding further pressure on households. Markets responded by pricing in renewed rate hikes, although Bank of England (“BoE”) Governor Andrew Bailey pushed back, cautioning that markets may be overreacting and signalling that policymakers remain focused on supporting growth through an energy-driven shock.
Geopolitical tensions added further complexity. Prime Minister Keir Starmer convened discussions with 35 nations to address the disruption to energy flows, while stopping short of aligning with the US, instead pursuing a multilateral approach to reopening the Strait. The UK and Europe’s reluctance to fully support US actions raised tensions within the alliance added more uncertainty to the markets. On the fiscal front, Chancellor Rachel Reeves opted to delay energy subsidies until the autumn despite benefiting from an £8 billion windfall in tax revenues linked to higher oil prices. The decision, alongside renewed support for North Sea drilling, exposed divisions within government but underscored a preference for market stability over immediate fiscal intervention. At the same time, Labour continues to prioritise a structural reset in EU relations, with officials targeting an agreement by early summer as the UK subtly re-balances its strategic alignment toward Europe.
The BoE warned that the current environment could expose vulnerabilities across highly leveraged areas, including sovereign debt, private credit and elevated asset valuations. In equities, the macro shock translated directly into sectoral stress, with airlines facing fuel shortages and agriculture pressured by sharply higher fertiliser costs. Merger and acquisition (M&A) activity remained active, highlighted by Unilever’s combination of its foods business with McCormick, creating a roughly $65 billion global food player.
Across the Atlantic, US equities rebounded, snapping a multi-week losing streak, with the Nasdaq leading gains as technology and communication services outperformed. Markets remained highly sensitive to developments in the Iran conflict, with volatility driven by shifting ceasefire expectations and US policy signals. Oil prices surged to multi-year highs amid supply disruptions, while gold recovered on safe-haven demand. Treasuries firmed following dovish commentary from Federal Reserve Chair Jerome Powell, reinforcing expectations for potential easing later in the year. Despite rising input costs and renewed supply chain pressures, big tech remained resilient, supported by continued momentum in AI investment and strategic partnerships.
The UK housing market showed tentative resilience, with modest increases in house prices and mortgage approvals supported by still-solid household balance sheets. However, rising energy costs, shifting rate expectations and broader macro uncertainty are likely to weigh on affordability and dampen housing activity in the near term.
3i Group, a UK-based private equity and infrastructure investment firm focused on mid-market growth businesses, surged 13.95% last week, recovering recent losses following a strong update from its largest portfolio company, Action. The discount retailer reported net sales of €3.7 billion, reflecting robust 14.5% annual growth. Given Action represents around 75% of 3i’s private equity portfolio, the update significantly eased prior concerns around valuation and earnings momentum. Sentiment was further supported by insider buying from the CEO and confirmation of compliance with UK listing rules on investment concentration limits.
Babcock International Group, a provider of aerospace, defence and nuclear support services to governments and militaries, rose 10.96% after securing a six-month bridging contract with the UK Ministry of Defence. The agreement ensures continuity of support for naval bases and the nuclear submarine fleet under the Future Maritime Support Programme. While the prior five-year contract has expired, management confirmed that negotiations for a longer-term agreement are at an advanced stage. The update, alongside a broker upgrade to ‘buy’, boosted confidence in earnings visibility amid increased defence spending.
Berkeley Group Holdings, a UK housebuilder focused on large-scale residential developments in London and the South East, fell 8.86% following an unscheduled trading update highlighting prolonged housing market weakness and macro uncertainty. The group announced a pause in new land acquisitions, citing higher taxes and regulatory pressures impacting returns. It also rephased its long-term strategy to 2035 and cut medium-term profit guidance by 33%. Despite maintaining its FY26 target and continuing buybacks, the cautious stance signals a challenging outlook for the 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.
