Central banks maintained a steady policy stance last week as geopolitical tensions in the Middle East continued to escalate. The Federal Reserve (Fed) held its benchmark rate at a range of 3.50–3.75%, with Chair Jerome Powell noting that the oil‑driven price shock could complicate the inflation path and therefore warranted a cautious wait‑and‑see approach (1). The Bank of England (BoE) and the European Central Bank (ECB) also left policy unchanged, each highlighting that the Iran‑related conflict has heightened uncertainty around both inflation and growth trajectories. The BoE warned that the conflict represents a near‑term inflation shock and emphasised the importance of restoring shipping routes through the Strait of Hormuz to contain energy‑driven price pressures (2). Notably, UK borrowing costs climbed to their highest levels since the Financial Crisis, prompting analysts to price in the possibility of further tightening before year‑end. Meanwhile, the Bank of Japan (BoJ) maintained its policy rate, underscoring the risks posed by Japan’s heavy reliance on Middle Eastern energy imports and the broader deterioration in global risk sentiment.

Equity markets endured another difficult week, with broad-based declines across most major indices as those geopolitical tensions and elevated volatility continued to weigh on sentiment. In the US, the S&P 500 fell by -1.9% (in dollar terms), marking yet another choppy trading period in which the energy sector once again emerged as the relative outperformer. It was a similar picture in Europe: the MSCI Europe ex UK retreated by -3.9%, with German equities the weakest among the major regional markets as risk aversion intensified. Across the Channel, both the FTSE 100 and FTSE250 declined by -3.3% despite meaningful support from the UK’s substantial oil sector, which benefited from higher energy prices. In Asia, the Shanghai Composite dropped by 3.4% (in renminbi), reflecting ongoing concerns around domestic growth and external demand. Moves in Japan were comparatively muted; the Nikkei 225 edged just -0.5% lower (in yen) in a holiday‑shortened week, suggesting a more resilient domestic backdrop even as global risk conditions deteriorated.

(Source 1: Federal Reserve – Summary of Economic Projections, 18/03/2026)

(Source 2: Bank of England – March 2026 Monetary Policy Summary and Minutes)

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