Market Insights Weekly 21 Aug 2026

Ma rket Insights Weekly 21 August 2026

UK policy patience, US policy uncertainty • UK PMI and consumer confidence surveys point to continued economic resilience • UK core inflation and labour market trends suggest limited second -round pressures • BoE policymakers appear well placed to wait for further evidence • Jackson Hole in focus as markets seek clarity on the Fed's policy approach

This report summarises key economic indicators, policy events and financial market movements over the past week, and looks ahead to highlights for the upcoming week.

Resilient data supports cautious BoE approach Jeavon Lolay Head of Market Insights Market expectations for the Bank of England (BoE) to keep interest rates on hold next month remained intact following a range of UK economic data releases this week. Official retail sales fell in July for the first time in three months, although monthly fi gures can be Hann -Ju Ho volatile. Sales volumes rose 1.1% in the three months to July compared with the previous Senior Economist three months, supported by favourable weather and the World Cup. Consumer sentiment also improved, with GfK consumer confidence rising three points to -14 in Nikesh Sawjani August, its highest level in two years. Senior UK Economist Business surveys likewise pointed to continued economic resilience. The August ‘flash ’ PMI report was stronger than expected, with the Composite index rising to 52.5 from Gajan Mahadevan 52.2 in July, indicating a modest acceleration in growth. The improvement reflected a Senior Macro Strategist pickup in services activity, with the Services PMI reaching a six -month high of 52.8, while growth in manufacturing output softened. The more upbeat survey evidence follows official figures showing GDP grew by 0.4% q/q in Q2, rounding off a robust first half of the Team mailbox year. Chart 1 shows the Composite PMI future output index and GfK consumer confidence.

Against this backdrop, inflation remains an important consideration. Headline CPI inflation increased to 2.9% in July, reflecting higher regulated gas and electricity prices via the Ofgem energy price cap, linked to earlier increases in global energy price s following the Middle East conflict. We expect inflation to average above 3% in the second half of the year, which is likely to weigh on real household incomes – see here .

Despite the increase in the headline rate, underlying inflation pressures remain relatively subdued. Core CPI inflation, excluding food and energy, was unchanged at 2.6%, while

Chart 1: Optimism returns after spring weakness

wage growth remains moderate. In addition, several indicators in the latest labour market report, including unfilled vacancies and payrolled employment, continue to point to soft labour demand – see here . Overall, while inflation risks remain tilted to the upside, limited evidence of second -round effects provides BoE policymakers with scope to wait for more data before adjusting policy. “Markets were jolted by US Treasury surprise drives global market moves a surprise US Treasury announcement this This week’s most significant moves in global financial markets followed the US Treasury’s surprise announcement on Wednesday that it would increase purchases of long -dated week. Attention is now Treasury bonds in the 10 - to 30 -year sector, financed by issuing more short -term shifting to Jackson Hole, sec urities. The aim was to lower longer -term borrowing costs, which Treasury Secretary where investors will be Bessent argued had risen above levels justified by economic fundamentals. looking for greater The announcement came after 30 -year US Treasury yields rose above 5.30% for the first clarity on the Fed's time since 2007, with spillover effects across global bond markets. UK gilt yields appeared to be influenced more by developments in US Treasuries than by domestic economic data reaction function .” over the past week, with the 10 -year gilt yield rem aining above 5% at the time of writing. The US dollar also weakened following the announcement, lifting GBP/USD above 1.36 and EUR/USD above 1.17, while USD/JPY remained below 160. Hann -Ju Ho Senior Economist Although Treasury yields initially…