Chancellor John Healey will deliver his first Budget on 28 October 2026. As the first major fiscal event under Prime Minister Andy Burnham, it’s likely to set the tone for the new government’s priorities for some time to come.

Beyond the UK, the last two months have followed a familiar pattern. The conflict in the Middle East and swings in technology shares continued to drive markets. What changed in September was the response from central banks: the US Federal Reserve, the European Central Bank and the Bank of Japan all raised interest rates, while the Bank of England held steady by a narrow margin.

UK

The Chancellor has said his first Budget will focus on fiscal discipline and kickstarting growth. In a video message announcing the date, he said: “This will be a budget that moves money and power out of Westminster, and into every postcode around Britain. It will be built on fiscal discipline.”

He repeated that message at the Labour Party conference in Liverpool this week, pledging to use the Budget to bring hope to the economy while sticking to the government’s borrowing rules, and warning there is nothing progressive about losing control of the public finances. The faces may have changed, but many of the economic challenges facing the previous Chancellor, Rachel Reeves, have not gone away. Higher government borrowing costs have eaten into the Chancellor’s room for manoeuvre, with estimates suggesting he has lost around half of the £23.6 billion buffer he inherited against his main fiscal rule.

One lesson does appear to have been learned. Last year’s Budget didn’t take place until 26 November 2025, which led to months of press speculation and criticism that the uncertainty was damaging the economy. By announcing an earlier, more typical date, the new Chancellor has shortened that window. Even so, speculation hasn’t disappeared. In his first weeks in office, the Prime Minister announced the removal of VAT from household electricity bills, but also allowed talk of changes to council tax and the income tax personal allowance to run largely unchecked.

It’s worth repeating a simple message. Last year, pre-Budget speculation led some people to make financial decisions they now regret. Nobody knows what the Chancellor will announce until he stands up in the House of Commons, so please don’t act on media speculation. If you have any questions or concerns, talk to us first.

Inflation has continued to edge up. Figures released in August showed consumer prices rising 2.9% in the year to July, up from 2.6% in June, driven mainly by a 13% rise in Ofgem’s energy price cap. September’s release then showed inflation reaching 3.1% in August, its first reading above 3% since March, with energy prices linked to the Iran war the main driver.

The jobs market remains a concern, particularly for young people. According to Statista, in the second quarter of 2026 the employment rate was highest among 35 to 49-year-olds, at 84.5%. For 16 to 24-year-olds, it was just 50.7%, one of the lowest rates on record for that age group.

In late August, Bank of England Governor Andrew Bailey struck a “wait and see” tone, saying the knock-on effects of higher energy costs on wider prices and wages had so far been subdued. When the Bank met on 17 September, it held interest rates at 3.75% for a sixth consecutive meeting, but the vote was split 6-3, with three members wanting an immediate rise to 4%. The Bank warned that if the Middle East conflict continues for an extended period, it is likely to need to raise rates. For savers, that means rates are likely to hold up for now. For borrowers, particularly anyone with a mortgage deal ending soon, it’s a reason to plan ahead.

United States

US shares spent much of August recovering from July’s sell-off in chip-makers. Nvidia’s shares fell for seven trading days in a row, their longest losing streak since 2022, after reports of price rises on its next generation of servers. The mood changed sharply after its results on 26 August, when revenue of $96.2 billion, more than double the same period last year, comfortably beat expectations. The episode showed both the enormous demand for AI technology and how little patience markets have for anything short of exceptional results.

At the end of August, Kevin Warsh, who took over from Jerome Powell as Chair of the Federal Reserve in May, used his first Jackson Hole address to warn that inflation remained the Fed’s biggest problem. Markets took the hint. On 16 September, the Fed raised interest rates by 0.25% to a range of 3.75% to 4%, its first rise in more than three years, in a unanimous 12-0 vote. Most Fed officials expect another rise later this year.

Despite higher rates, US shares have held up well. Even with turbulence in bond markets, the S&P 500 stayed close to record highs in September, with technology and chip companies leading the way. The bigger story has been in government bonds: the yield on 10-year US government debt touched 5.225% last week, its highest level since 2007. Rising yields mean higher borrowing costs across the economy and are something we’re watching closely.

The Strait of Hormuz remains the other dominant story. Early August brought hopes of a deal to restore shipping, but talks stalled and hostilities resumed at the end of the month. Fighting escalated in early September, pushing Brent crude above $100 a barrel for the first time since May. Most recently, oil prices jumped again after President Trump rejected an Iranian proposal to reopen the Strait within seven days. Brent closed at $105.28 a barrel on Monday, though prices eased from their highs as Saudi Arabia restored flows through a key pipeline that bypasses the Strait. Hopes of a quick resolution have faded, with Iranian officials reportedly doubting an agreement can be reached before the US midterm elections in November.

Europe

As expected, the European Central Bank (ECB) raised interest rates on 10 September, lifting its main deposit rate by 0.25% to 2.5%. It was the ECB’s second rise this year. ECB President Christine Lagarde warned that the Middle East conflict and developments in the war in Ukraine will keep inflation well above the ECB’s 2% target for an extended period.

There was better news on growth. The ECB raised its forecasts, now expecting the eurozone economy to grow 0.9% this year and 1.4% in 2027, citing stronger than expected resilience, supported by defence and infrastructure spending and recovering consumer confidence. That’s consistent with the European Commission data in August showing economic confidence at a seven-month high.

Importantly, wages haven’t yet responded to the energy shock, suggesting the rise in inflation is still driven mainly by energy rather than a broader spiral of rising wages and prices. The ECB has been careful not to commit to further rises, and its next meeting is on 29 October.

Far East

China’s economy showed a mixed picture. July’s figures, released in August, were weak across the board. The latest figures for August were more uneven: industrial production growth picked up to 5.2%, beating expectations, but retail sales grew by just 0.4%, and unemployment edged up to 5.3%.

Investment continues to fall, down 7.2% over the year so far, driven mainly by a 19.9% drop in property development. The pattern is increasingly clear: China’s high-tech and export sectors are performing strongly while household spending and property remain weak, and pressure is growing on Beijing to do more to support demand at home.

In Japan, the Bank of Japan followed through on its signals and raised interest rates by 0.25% to 1.25% on 18 September, taking them to a 31-year high. It’s a significant moment for a country that spent decades with near-zero interest rates, and one that global investors are watching closely, as higher Japanese rates can affect the flow of money around world markets.

Emerging Markets

South Korea’s main stock index, the KOSPI, had one of its most dramatic months on record in August. Having fallen sharply in late July on the same worries about chip valuations that hit Wall Street, it recovered strongly, including a 22% rally in just ten days as optimism about AI returned.

The El Niño weather pattern remains a live issue. The World Meteorological Organization and the US National Oceanic and Atmospheric Administration (NOAA) have put the chance of El Niño conditions lasting from August to November at around 90% or higher, with NOAA suggesting it could become “very strong” later in the year.

Some emerging economies are particularly vulnerable to the drought El Niño can bring, including India. India’s weather service has pointed to near-normal rainfall in the short term, easing immediate concerns about this year’s monsoon, but the medium-term risk to crops and food prices remains on the radar across South Asia, East and Southern Africa, and parts of Latin America.

Summary

The story of the last two months has been one of persistence: the same nerves about AI valuations, the same fragile situation with Iran, and the same inflation pressures driven by energy prices. What’s changed is that central banks have moved from watching to acting. The Fed, the ECB and the Bank of Japan all raised interest rates in September, and the Bank of England came close to joining them.

Oil remains the biggest wildcard. With Brent crude above $100 a barrel and no agreement in sight on the Strait of Hormuz, energy prices are likely to keep inflation and interest rates elevated for longer than many had hoped. Yet share markets, particularly in the US, have remained remarkably resilient.

For UK investors, the Budget on 28 October is the next big moment. Periods like this can be unsettling, but they’re also a reminder of why a well-diversified, long-term plan matters more than reacting to the headlines. If you’d like to talk through what recent events mean for your own investments, or you have questions ahead of the Budget, please get in touch.