Energy shock returns: what it means for markets and investors
Markets unsettled as energy prices rise again
Escalating tensions in the Middle East dominated markets in March, pushing energy prices sharply higher and raising fresh concerns about inflation. Oil prices climbed above $100 per barrel and continued rising towards month-end, which unsettled investors and made the outlook for interest rates less certain.
When energy prices rise quickly, it can feed through into everyday costs, making inflation harder to bring down. This puts central banks in a difficult position – balancing the need to control inflation while also supporting economic growth.
As a result, expectations for interest rate cuts were pushed further out, bond yields rose, and stock market performance varied across different regions.
Let’s explore this in a bit more detail.
A global energy shock reignites inflation uncertainty
- Oil prices surged amid geopolitical tensions, with Brent crude breaching $100 per barrel as supply disruption risks increased, according to financial news agency Reuters.
- Government bond yields moved higher as markets pushed back expectations for rate cuts, with financial data platform Bloomberg highlighting the shift in interest rate expectations.
- Central banks adopted a more cautious tone, with policymakers increasingly acknowledging the inflationary impact of higher energy prices, as reflected in commentary from the International Monetary Fund (IMF) and recent central bank updates.
Resilient growth in the US meets sticky inflation
- The US Bureau of Labor Statistics, the government’s official data agency, reported that inflation, as measured by the Consumer Prices Index (CPI), remained elevated at around 3.2% year-on-year. Meanwhile data provider, S&P Global, showed input costs rising at their fastest pace in 10 months.
- The Federal Reserve held interest rates at 5.25%–5.50%, with Chair Jerome Powell signalling limited urgency to ease policy amid ongoing inflation uncertainty.
- Business activity showed signs of moderation, with S&P Global’s closely watched Purchasing Managers’ Index (PMI) survey indicating that the Composite index fell to 51.4. This was largely driven by softer services activity.
A weak growth backdrop with rising inflation risks in the UK
- The Office for National Statistics (ONS), the UK’s official statistics agency, reported inflation holding at 3.0% in February. However, rising energy prices point to potential upside pressure in the months ahead.
- The Bank of England maintained its base interest rate at 5.25%, warning that a prolonged energy shock could sustain inflationary pressures.
- UK economic growth stalled, with ONS data confirming monthly Gross Domestic Product (GDP) was flat at 0.0% in January, reflecting weaker services output.
Growth softness and energy exposure weigh on Europe and Asia
- The Organisation for Economic Co-operation and Development (OECD) lowered its 2026 eurozone growth forecast to around 0.8%, citing higher energy costs and geopolitical uncertainty weighing on activity.
- S&P Global reported the eurozone Composite PMI fell to 50.5 in March, highlighting slowing demand and near-stagnant growth conditions.
- Across Asia, rising energy prices added pressure to import-reliant economies such as Japan, where higher oil costs, and a weaker yen, reinforced inflation concerns and weighed on the economic outlook.
In summary
March was shaped by a renewed energy shock, which has made the path for inflation and interest rates less predictable. While global growth is still holding up in some regions, particularly the US, other areas such as the UK and Europe are facing a more challenging environment. Markets have reacted accordingly, with higher volatility and more divergence between regions and asset types.
While the headlines may feel unsettling, this type of market uncertainty is not unusual. Geopolitical events and energy price shocks have always been part of the investment landscape.
It’s important to remember that markets tend to adjust over time, and well-diversified portfolios are designed to navigate exactly these kinds of conditions. Different assets respond in different ways, helping to smooth the overall journey.
For long-term investors, staying focused on your goals – rather than short-term market movements – remains key. Periods like this can feel uncomfortable, but they are a normal part of investing, and maintaining a disciplined approach is often the most effective way to achieve strong outcomes over time.