Markets rebounded this week, with the FTSE 100 rising 3.3% to trade at 10,890 points at the time of writing. The UK economy expanded by 0.7% in the third quarter of 2026, its fastest rate of growth since 2024, according to figures from the Office for National Statistics.
The expansion matched economists’ expectations and compared with growth of 0.5% in the second quarter. Annual growth reached 1.9%, highlighting the resilience of the economy despite higher energy prices and borrowing costs. Growth was largely driven by the services sector, which expanded by 0.9% over the quarter. Information technology was among the strongest contributors, with computer programming activity benefiting from increased investment related to Artificial Intelligence.
Economic output also increased by 0.2% in September, although August’s growth figure was revised down from 0.1% to no growth. The Treasury welcomed the figures, noting that growth during the first three quarters of 2026 was the strongest in almost a decade, excluding the post-pandemic recovery. However, the outlook for inflation remains challenging. Earlier this month, the Bank of England raised interest rates by 0.25 percentage points to 4%, while warning that inflation could reach 5% next year, partly reflecting higher energy costs associated with the conflict in the Middle East.
Meanwhile, the National Institute of Economic and Social Research (NIESR) has revised upwards its UK growth forecast for 2026 to 1.6%, from 1.1% previously. The think tank attributed the improvement to stronger government spending and business investment, including expenditure related to AI.
However, it expects growth to moderate to 1.1% in 2027 and 0.9% in 2028. NIESR also increased its inflation forecasts, predicting that consumer price inflation will peak at 4.4% in February 2027, compared with its previous estimate of 3.8%. It expects inflation to remain above the Bank of England’s 2% target throughout 2027, 2028 and 2029, only returning to target towards the end of 2030. The organisation expects average wage growth of 3.9% over the next three years, while unemployment is forecast to gradually increase from 4.8% in 2026 to a peak of 5.1% in 2031.
Financial markets are currently pricing in two or three further quarter-point interest rate increases by the end of 2027. However, NIESR expects just one additional increase, forecasting a rise in February. It also suggested that rates may need to reach approximately 5% to bring inflation sustainably back towards target over the medium term.
Commodity markets
In commodity markets, Brent crude futures traded around $96 per barrel on Friday, and are set for their second weekly decline, as the US plans to continue its Iranian blockade, reducing the chance of renewed large-scale fighting that could disrupt Middle East supplies, though attacks on shipping remain a danger.
It was a volatile week for oil prices with earlier hopes for a rapprochement of the US-Israel war against Iran offset by strikes on Saudi Arabian infrastructure by Yemen’s Iran-backed Houthis and attacks on tankers transporting crude out of the Gulf. US President Donald Trump said on Friday that a deal with Iran was not necessarily an end to the war, indicating he will stick with the blockade on oil shipments and trade and economic sanctions.
Despite the easing prices, risks remain for oil shipments out of the Strait of Hormuz, the key waterway for crude exports from the main Middle East producers. On Thursday, Iran’s military said four oil tankers were hit by explosions in the Strait of Hormuz after ignoring warnings. Reuters could not immediately verify the Iranian accounts.
The same day, Iran-aligned Houthis said they had attacked a pumping station on the Saudi East-West oil pipeline; an oil facility in the Saudi Red Sea city of Yanbu; and an Aramco building in the capital Riyadh. Also pressuring prices, US crude and fuel inventories rose last week, driven by softer refined products demand and a jump in oil imports, the Energy Information Administration said on Thursday.
Gold traded around $3,890 per ounce on Friday and is set for a weekly fall, weighed down by a robust US dollar, expectations of further monetary tightening by the Federal Reserve and hawkish signals from policymakers.
Equity markets
US equity futures rose on Friday after selling pressure on Nvidia shares eased following the resignation of CEO Jensen Huang amid an ongoing scandal. In Thursday’s regular session, the Dow Jones Industrial Average fell 0.36%, the S&P 500 lost 0.35% and the Nasdaq Composite declined 0.39%.
US inflation remained stubbornly elevated in October, adding to expectations that the Federal Reserve may need to tighten monetary policy further. Figures from the Bureau of Labor Statistics showed consumer prices increased by 0.4% month-on-month, down from September’s 0.6% rise but ahead of economists’ expectations of 0.3%.
Core inflation, which excludes volatile food and energy prices, rose by 0.3%, unchanged from August and September. Economists had expected this measure to ease to 0.2%. The BLS did not publish an annual inflation figure for October, as a government shutdown in October 2025 had prevented the collection of comparable data. The monthly figures showed increases in the cost of petrol, electricity and food, alongside higher prices for transportation services, car insurance and medical care.
The latest figures have added to concerns about persistent inflationary pressures, with the impact of the Iran war and increased demand for energy and infrastructure to support artificial intelligence contributing to higher costs. Investors increased their expectations of further monetary tightening at the Federal Reserve’s next meeting. The central bank had already raised interest rates for the first time in more than three years in September, taking its benchmark rate to a range of 3.75%–4%.
Ahead of the latest inflation figures, Federal Reserve governor Christopher Waller suggested that a 0.5 percentage point increase could be considered next month if core inflation failed to moderate. Such an increase would be the largest single rate rise since 2022. The cost of living featured prominently in last week’s US midterm elections, with the Democratic Party securing a significant victory amid voter dissatisfaction with President Donald Trump and the continued pressure of higher prices.
Elsewhere, tensions between Washington and Beijing have resurfaced following reports concerning Nvidia Chief Executive, Jensen Huang and his alleged links to an individual suspected of being a Chinese spy. Beijing has warned the US against using the allegations as justification for further restrictions on exports of critical technologies.
The controversy comes amid ongoing disagreements over China’s access to advanced semiconductors, which are essential to developing artificial intelligence. Nvidia remains central to this debate, given its position as the world’s leading designer of AI chips.
The latest developments risk complicating the fragile trade truce. Investors ditched technology stocks on fears that the Democrats will hamper the development of data centres, vital infrastructure underpinning the artificial intelligence boom. The centres were a political flashpoint for voters across the US, with the Democrats vowing to slow their expansion.
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