London, 15 October 2026 — EBM Newsdesk Analysis — By Brad Adams
On Thursday, the sell-off that began on Wall Street and swept through Asia reached Europe. The trigger was hotter-than-expected US inflation, with consumer prices up 3.7% in the year to September. Semiconductor stocks, the biggest winners of the AI boom, fell hardest. London’s FTSE 100 slipped only slightly in early trade. Its long-standing weakness, a shortage of big tech companies, has suddenly become its protection.
The UK also brought better news of its own. The economy grew 0.1% in August when economists had expected it to shrink. For European investors, the lesson is that boring sectors are earning their keep again. Banks, energy companies, miners and consumer staples dominate the FTSE, and they look far safer than chipmakers priced on future AI profits.
The Cost of Money Bites
The real story is in the bond market. After the inflation figures, the US 10-year Treasury yield jumped to 5.33%, and investors started pricing in further Federal Reserve rate rises. Yields eased slightly later on hopes the Fed will stay cautious, but conflict in the Middle East means more swings are likely.
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SubscribeHigher borrowing costs hurt most where debt is heaviest. Much of the AI building boom, from data centres to chips, has been paid for with borrowed money, and the financing behind it is getting dearer. That raises a question for banks and private credit funds that have lent heavily to the sector: what happens to those loans if the demand they assumed takes longer to arrive?
America’s Debt Problem Returns
The sell-off also puts America’s finances back in focus. The global bond sell-off has already made it more expensive for Washington to fund a large and persistent budget deficit, a risk the IMF has flagged.
For now the US economy is growing at an annual rate of 2.2%, which makes the debt manageable. But if AI spending slows and consumers pull back, growth would weaken while interest costs keep rising. That is how a debt trap starts: you borrow more to pay the interest on what you already owe.
Britain Surprises on the Upside
The UK’s August figures were modest but welcome. Consumers spent less than in July as fuel prices rose with the energy shock from the Gulf. Some of that was probably a return to normal after July’s heatwave and World Cup spending.
Industry made up the difference. Production grew 0.8%, a sign that plenty of manufacturers are carrying on despite the turmoil.
Even if growth stalls from here, the UK looks on course to beat the IMF’s newly upgraded forecast of 1.3% for this year. That gives Prime Minister Andy Burnham and Chancellor John Healey some breathing space before the Budget.
Where This Goes
I would not celebrate yet. The danger is that high energy costs become built into prices and wages. If that happens, the Bank of England will have to raise rates, and next year’s growth will pay for this year’s resilience.
London’s defensive mix is a real advantage in a week like this. But a market that wins by having little tech exposure has not solved Britain’s growth problem. It has just avoided someone else’s.
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