31 July 2026
Estimated read time: 6 minutes

Watch some of the TFP team chat through this months market update here – https://youtu.be/S37KID0BJfc

Renewed tensions involving Iran pushed oil prices sharply higher in July, while investors began questioning whether the vast sums being spent on artificial intelligence will deliver sufficiently strong and timely returns. UK shares performed well, supported by energy, mining and banking companies, as the country welcomed a new Prime Minister. Meanwhile, another round of US tariffs was met with relative calm as markets increasingly accepted that trade barriers are likely to remain.

As Europe prepared for further heatwaves, tensions in the Middle East showed little sign of cooling. June’s US-Iran Memorandum of Understanding remained the basis for negotiations, but fresh disagreements unsettled markets and pushed oil prices higher. Although prices remained below their spring peaks, the increase added to concerns that inflation could prove more persistent than previously hoped.

In the US, the once-dominant “Magnificent 7” technology companies acquired a less flattering nickname: the “Lag 7”. Investors became increasingly impatient to see whether the extraordinary amounts being invested in artificial intelligence would translate into profits.

Much of this spending continued to flow towards semiconductor manufacturers in Taiwan and South Korea, supporting returns across the region. However, strong performance also attracted speculative retail investors, contributing to greater volatility in some local markets.

At home, Andy Burnham became the UK’s sixth Prime Minister in ten years. His early announcements included a 20% reduction in business rates and a cut to VAT on household electricity bills. More significant reforms are expected to follow, potentially involving both increased public spending and higher taxes. Credible fiscal reform would likely be welcomed by bond investors.

Finally, the US introduced tariffs of between 10% and 12.5% on a range of trading partners. Markets reacted calmly, reflecting a growing acceptance that tariffs are likely to remain part of the global economic landscape. The focus has therefore shifted from whether further tariffs will be introduced to what their longer-term presence could mean for inflation, economic growth and company profits.

Bottom Line

This year has provided another reminder that market leadership can change, even when the position of today’s winners appears unassailable.

It remains unclear which businesses and markets will ultimately benefit most from the AI investment boom. History suggests that the companies making today’s largest investments are not always those that capture tomorrow’s profits. The eventual rewards may therefore be distributed more widely than many investors currently expect.

Q&A

What’s on your mind?

What to expect from the UK’s new PM?

Andy Burnham’s first days in office focused on modest but popular policy measures, including capping bus fares at £2, reducing business rates for pubs and cutting VAT on household electricity bills.

The greater challenge will be delivering the broader reforms he has described as the biggest changes in 40 years. Welfare reform appears to be a priority, with an emphasis on helping more people into work rather than relying solely on spending cuts. However, he has ruled out changes to the costly triple-lock pension.

Other proposals include meeting NATO spending targets, delivering the largest council housebuilding programme since the post-war period, transferring more power away from Whitehall and avoiding an early general election.

Although his initial focus has been largely domestic, Burnham has reaffirmed the UK’s support for Ukraine and expressed a desire for closer relationships with both Europe and the US. The government’s first major test will come with Chancellor John Healey’s Budget on 28 October, which will need to balance reform with the fiscal discipline required to reassure investors.

Where next for UK interest rates after the Bank of England’s (BoE) latest decision?

The Bank of England left interest rates unchanged in July and highlighted several encouraging developments in the inflation outlook. In particular, the recent increase in energy prices did not yet appear to be feeding into wider price rises across the economy.

Although policymakers remained alert to inflation risks, bond markets were pricing in only one further quarter-point increase by the end of the year. Earlier in 2026, investors had expected as many as four increases.

Under the Bank’s central forecast, UK inflation is expected to rise from 2.6% to a peak of 3.2% by the end of the year before moving back towards the 2% target during 2027.

Forecasts are never certain, particularly when geopolitical events can change the outlook quickly. Nevertheless, the Bank’s current assessment offers some reassurance that inflationary pressures may remain contained.

How has the UK stock market been performing?

UK shares outperformed many overseas markets during July, reaching new all-time highs and extending their recent run of gains.

The composition of the UK market has been an important factor. Unlike the US and parts of Asia, it is less dependent on technology and AI businesses and has greater exposure to energy, mining and banking companies.

Higher oil prices benefited the UK’s major energy companies, while stronger commodity prices supported mining shares. Expectations that interest rates could remain elevated were also helpful for banks, which can earn more when borrowing costs are higher.

UK-listed companies also tend to carry less debt than many faster-growing businesses overseas, making them less sensitive to higher interest rates. Despite their recent gains, UK shares continued to trade at relatively modest valuations compared with many international markets, helping to maintain interest from overseas investors.

Month by Numbers

As at 31 July 2026

Equities

• UK: +3.87%
• Europe: -0.06%
• US: -0.08%
• Emerging Markets: -4.31%
• Japan: -1.03%

Bonds / Rates

• UK base rate: Unchanged at 3.75%
• Federal funds rate: Unchanged at 3.75%
• UK 10-year government bond yield: Up 0.29 percentage points to 5.05%
• US 10-year government bond yield: Up 0.27 percentage points to 4.71%

Currencies

• GBP/USD: +1.39% to $1.35
• GBP/EUR: +0.53% to €1.17
• US Dollar Index: -1.26% to 99.91

Commodities

• Gold: +0.85% to $4,042.67
• Brent crude oil: +23.59% to $90.12

Noteworthy

• South Korean equities: -22.19%