Introduction
Global equity markets rebounded strongly in April amid easing geopolitical tensions after the announcement of a fragile ceasefire in the Middle East. Market performance was led by technology and AI-related sectors, particularly in Asia. However, April was a more challenging month for fixed income, as oil prices remained elevated and persistent inflation concerns weighed on sentiment.
Economic Overview
UK
Bank of England and Interest Rates
As expected, the Bank of England (BoE) kept interest rates at 3.75%. The Monetary Policy Committee voted 8–1 to hold, with one member favouring a 0.25% rise to address upside inflation risks. Governor Andrew Bailey said future decisions would be difficult, as waiting for clear evidence of inflationary pressure could prove too late. He also said the BoE was not pushing back against expectations of at least two rate rises this year, but was not signalling that rates would definitely increase. Given uncertainty caused by the Middle East conflict, the BoE did not publish its usual quarterly central forecast update and instead outlined three scenarios based on energy prices and different degrees of second-round effects. It reiterated that the Committee stands ready to act if needed.
Economic Growth
The UK economy grew 0.5% in February, the biggest monthly increase since January 2024 and well above the forecasted 0.2% gain as well as January’s upwardly revised 0.1% gain (previously flat). Growth was driven by the 0.5% increase in the dominant services sector, whilst production rose by the same amount, Construction expanded by 1%. In the three months to February, the economy expanded by 0.5%, beating the forecasted 0.2% and the strongest pace since the three months to April 2025.
Unemployment & Labour Market Statistics
Labour market data showed some stability: wage growth slowed by less than expected and unemployment unexpectedly fell. The unemployment rate fell from 5.2% to 4.9% in the three months to February, against forecasts for no change. The ONS said this reflected 169,000 more people classed as inactive, or out of work and not seeking a job. Job vacancies fell to 711,000 in the three months to March, the lowest since the three months to April 2021.
Annual regular pay growth rose 3.6% in the three months to February, down from 3.8% but above the 3.5% forecast. Adjusted for inflation, regular pay grew 0.4%. Private sector pay excluding bonuses, a key measure watched by the Bank of England, was unchanged at 3.3%. Public sector wage growth slowed from 5.9% to 5.2%. The ONS said the effect of public sector pay rises being awarded earlier in 2025 than in 2024 has largely passed and should drop out next month. Total pay growth, including bonuses, was 3.8%, or 0.7% in real terms.
Inflation
UK inflation, as measured by the Consumer Price Index, rose from 3% in February to 3.3% in March, in line with expectations. The increase was driven by transport costs, which rose 4.7%, their fastest pace since December 2022, with motor fuels making the largest upward contribution. Housing and household service costs increased 4.3%, up from 4.2%, driven by higher domestic heating oil prices. Food and non-alcoholic beverage prices also rose faster, while clothing prices fell 0.8%, the sharpest drop since March 2021.
Core inflation, which excludes food, energy, alcohol and tobacco, fell from 3.2% to 3.1%, below forecasts for no change. Services inflation, which the Bank of England views as a key measure of domestic inflation, unexpectedly rose from 4.3% to 4.5%, while goods inflation increased from 1.6% to 2.1%.
US
Federal Reserve and Interest Rates
As expected, the Federal Reserve (Fed) kept interest rates unchanged at 3.5%–3.75%. However, the decision was the most divided since 1992: eight officials voted to hold, three dissented because they felt the statement’s “easing bias” was no longer appropriate, and one preferred a rate cut. Chair Jerome Powell said import tariffs and high energy costs could add further pressure to core inflation, complicating the Fed’s task. He added that policymakers were not ready to signal possible rate rises, though the centre was moving to a more neutral position where increases and cuts would carry equal weight.
This was Powell’s last meeting as Fed Chair, with designated successor Kevin Warsh potentially confirmed in the coming weeks. Powell will remain a Fed governor, an unusual move aimed at defending the central bank’s independence as it faces legal action from President Trump’s administration. His term on the Board of Governors runs until January 2028, and he said he would decide later how long to remain in the role.
Economic Growth
The advance estimate showed the US economy grew at an annualised 2% in Q1, up from 0.5% in Q4 2025 but below the 2.3% forecast. Equipment spending surged on AI-related investment, helping overall business investment add more than 1% to GDP, while inventories added 0.4%. Government spending rose 4.4% after a 5.6% contraction in Q4. Consumer spending, which makes up about two-thirds of the economy, slowed from 1.9% to 1.6%. Net trade detracted from growth as exports rose more slowly than imports.
Inflation
US consumer prices rose at their fastest pace in nearly four years in March as the Middle East conflict drove gasoline and diesel prices sharply higher. As expected, the Consumer Price Index (CPI) increased 0.9%, the biggest rise since June 2022 and up from 0.3% in February. Nearly three-quarters of the increase came from a 21.2% jump in gasoline prices, the largest since records began in 1967. Other motor fuels, including diesel, rose 30.8%. Food prices were unchanged after rising 0.4% in February. Over the 12 months to March, CPI increased 3.3%, up from 2.4% in February.
Core CPI, which excludes volatile food and energy components, rose 0.2% in March, matching February. Used car and truck prices fell 0.4% and prescription medication prices dropped 1.5%, while airline fares rose 2.7% and rents increased moderately. Over the 12 months to March, core CPI rose 2.6%, up slightly from 2.5% in February.
Europe
European Central Bank and Interest Rates
The European Central Bank (ECB) held its interest rate at 2%, matching expectations. ECB President Christine Lagarde said the rate decision was unanimous, but the option of an increase was already put on the table and debated at length and in depth as inflation developments were moving away from the central bank’s ‘baseline’ projection.
Economic Growth
A preliminary estimate showed Eurozone GDP rose just 0.1% quarter-on-quarter in Q1, below the 0.2% forecast and from the 0.2% expansion in Q4 2025. The slowdown reflected tighter energy supply after the Middle East conflict began. Among the largest economies, Germany grew 0.3%, while growth slowed in Italy to 0.2% and in the Netherlands to 0.1%, and France unexpectedly stalled. Year-on-year, the economy grew 0.8%, below the 0.9% forecast and down from 1.3% in the previous quarter.
Inflation
Eurozone inflation rose to its fastest pace since July 2024 in March, driven by surging oil and gas costs linked to the Middle East conflict. Annual inflation increased to 2.6% from 1.9% in February. The rise was mainly due to energy prices, which increased 5.1% year-on-year, their first annual gain in nearly a year and fastest since February 2023. However, inflation slowed in services, from 3.4% to 3.2%, in non-energy industrial goods, from 0.7% to 0.5%, and in food, alcohol and tobacco, from 2.5% to 2.4%. Annual core inflation, which excludes energy, food, alcohol and tobacco, eased from 2.4% to 2.3%.
Asia and Emerging Markets
Japan
As expected, the Bank of Japan (BOJ) kept interest rates at 0.75%. However, three of its nine board members unexpectedly proposed raising borrowing costs to 1%, the most dissents since January 2016, reflecting concern about inflationary pressures from the Middle East conflict. The BOJ also sharply raised its price forecasts while warning of overshoot risks. Governor Kazuo Ueda said policymakers held rates to allow more time to assess the conflict’s impact, but stressed they were ready to raise rates if the energy shock risked feeding broader inflation, provided any economic slowdown proved moderate. He gave little indication of timing, though noted the policy rate remains below neutral.
China
The National Bureau of Statistics (NBS) said China’s economy grew 5% year-on-year in Q1, ahead of both the forecasted 4.8% and the 4.5% gain in the previous period. It was also the fastest annual growth in three quarters. Growth was largely supported by resilient export performance.
Market Overview
CR = Capital return; LC = Local currency
Source: Lipper for Investment Management
Past performance is not a reliable indicator of future performance
UK equities rose in April, with the mid cap FTSE 250 enjoying a stronger rebound than the FTSE 100. Gains in the FTSE 100 were capped by its relatively low exposure to growth and technology stocks, whilst the higher weighting in energy stocks weighed on performance amid profit-taking in oil & gas stocks. The FTSE 250 benefited from its greater allocation to more domestically-focussed stocks due to improving signs in the UK economic outlook.
US equities, as shown by the S&P 500, produced a double-digit gain in April, one of its strongest monthly returns in recent years. Gains were led by large-cap growth stocks, notably in technology and communication sectors that benefited from investor enthusiasm for AI-related stocks. European markets, as demonstrated by the FTSE World Europe ex UK Index, recorded a good positive return, supported by selected technology stocks and industrial sectors, whilst banks rose on the prospect of higher interest rates and better net interest margins. The Japanese Nikkei 225 Index posted a very strong double-digit positive return amid the easing in geopolitical tensions and robust performance from AI-related stocks.
Asian markets performed strongly, as shown by the large gain in the broad MSCI Asia ex Japan Index. Performance was led Taiwan and South Korea, with their dominant positions in semiconductor manufacturing-related stocks driving returns. However, there was more muted performance from China and Hong Kong amid ongoing concerns around domestic growth. Emerging markets similarly performed strongly, as shown by the gain in the broad MSCI Emerging Markets Index. Whilst Asian markets led returns, Brazil underperformed despite its economy showing broad-based momentum.
UK government bonds (FTSE Actuaries UK Conventional Gilts Index) suffered a small loss in April, as oil prices remained elevated and markets expected interest rates to combat higher inflation. The beginning of the month did see yields fall (prices and yields have an inverse relationship) on the announcement of a temporary ceasefire in the Middle East, but the lack of progress in negotiations meant focus returned towards an increase in inflation. UK gilts also suffered from political and fiscal concerns ahead of May’s local elections. Sterling investment-grade corporate bonds also fell to a nominal loss.
This update is intended to be for information only and should not be taken as financial advice.
CA13525 Exp:05/2027
