London's FTSE 100 index posted its biggest daily gain in a year on Tuesday, rising 1.8% as Brent crude prices tumbled on hopes that the Middle East conflict may soon end. The rally came despite ongoing political uncertainty and a sharp drop in UK consumer confidence.
Brent crude fell sharply, while government bonds also rallied. The positive market moves followed a turbulent first quarter of 2026, which saw poor asset returns as the Iran war dominated the agenda. Analysts at Deutsche Bank noted that the US stock market hit a record high during the quarter.
However, the conflict continues to weigh on the UK economy. The latest YouGov/Cebr consumer confidence index dropped by 2.9 points in March to 105.8, the biggest fall since last April and the lowest level since December 2023. The forward-looking measure of household finances recorded its largest drop since August 2022, and job security perceptions were negative and lower than the previous month.
UK mortgage rates paused their steady rise on Tuesday, with the average two-year fixed rate unchanged at 5.84% and the five-year fixed rate edging down to 5.75%. However, rates have risen sharply since the start of March, when the two-year rate stood at 4.83% and the five-year at 4.95%. Caitlyn Eastell of Moneyfacts said the increases have added around £1,800 a year to the average two-year fixed mortgage for a typical £250,000 loan.
UK manufacturing also felt the impact, with the S&P Global UK Manufacturing PMI showing input cost inflation accelerating at its fastest rate since 1992. Suppliers' delivery times lengthened to the greatest extent since mid-2022, and production output contracted for the first time in six months. Rob Dobson of S&P Global Market Intelligence attributed the decline to the Middle East war and domestic economic policy concerns.
