UK Weekly Kickstart The UK's Resilience Is Being Tested

Portfolio Strategy Research 18 September 2026 | 12:39PM BST

The UK’s Resilience Is Being Tested

n Inflation up: This week’s CPI data showed headline Energy prices have risen sharply following more Middle Sharon Bell | inflation rising to 3.1% in August (from 2.9%), in line with East disruptions, central banks have turned more Goldman Sachs International consensus but ahead of the BoE’s projection. The hawkish and bond yields have repriced higher. On Guillaume Jaisson increase was driven by a further jump in petrol and energy prices, our commodities team recently adjusted | diesel prices. Core inflation was unchanged at 2.6%, in their view to assume a more prolonged disruption in Goldman Sachs International

line with expectations. Within core, there was a marginal Middle East supplies, and as such raised their Jacinta Feng | downside surprise on services inflation. But this was Brent/WTI price forecasts by $5/bbl to $85-80/bbl for Goldman Sachs International driven by airfares, while underlying services inflation Dec2026 and to $80-75/bbl for 2027; they also raised measures were firmer than our economists had their 4Q26 TTF gas forecast to 70 EUR/MWh from 53 anticipated. We expect inflation to rise further in the EUR. The relationship is not especially close (there are coming months, as energy inflation continues to increase too many other influences), but generally FTSE 100 and indirect effects of the shock build in food and core outperforms more domestic slices of the UK market as goods prices. Headline CPI inflation is likely to peak at energy prices rise (Exhibit 1). 3.9% early next year, before decelerating through the n Bond yields up: The rise in bond yields has been rest of 2027 as energy prices drop. especially sharp and our rates strategists recently raised n Payrolls down: The labour market numbers showed the their year-end forecasts to 4.75%/5%/3.25% for unemployment rate remaining at 4.9% in July, in line with US/UK/German 10-year yields. Despite a slightly dovish consensus expectations. But the payrolls figures were BoE meeting and some much-needed relief for weaker than expected, with the July figures revised long-dated gilts after an adjustment in long-dated downwards and the August flash print showing a 26k bond sales, higher bond yields are proving more contraction. difficult for equities to digest given both the higher level now and the speed of the prior sell-off. In recent n Energy prices up: Over the past few weeks, almost every months there has been a negative correlation between key macro forecast has moved in the same direction.

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Goldman Sachs UK Weekly Kickstart

equities and bond yields (Exhibit 2). That said, higher-for-longer yields benefit some slices of the market, especially companies with large DB pension funds; pension fund solvency has risen substantially given the rise in the discount rate (liabilities tend to be longer-duration than assets) (Exhibit 3).

n Resilient UKX; Weaker domestic: FTSE 100 is well hedged against higher commodity prices. Higher rates and higher inflation (especially caused by higher commodity prices) tend to benefit FTSE 100 relative to other global indices given its market cap and earnings exposure. Banks and Energy are its biggest overweights vs. MSCI World, whereas the index is sharply underweight Technology (Exhibit 4).