Last week, I wrote about the repricing of capital.

This week, the focus is slightly different—the macro signals that may determine how durable the repricing becomes.

Every cycle develops its own narrative.

Sometimes that narrative is about technology.

Sometimes it is about geopolitics.

And sometimes it is about capital itself.

Right now, we are living through a moment when all three forces are colliding — and what makes this moment unusual is that each force is amplifying the others rather than acting independently.

Events are also moving quickly. A week currently feels like a very long time in markets and geopolitics.

Which is why it is worth continuing to step back and focus on the macro forces shaping the environment in which businesses, consumers, and investors operate.

That amplification — among geopolitics, capital, and technology — is where the interesting analysis lies.

The Energy Shock That Changes the Rate Calculation

Markets have a powerful instinct called muscle memory.

Right now, that muscle memory is pulling attention back to 2022.

The Pantheon Macroeconomics UK Economic Monitor, published this week, does something analytically useful. It places the 2026 energy shock — triggered by the US and Israel beginning military strikes against Iran — directly alongside the 2022 shock that followed Russia’s invasion of Ukraine.

The comparison is striking. Oil and natural gas spot prices have risen by a similar percentage in both episodes. The scale of the shock, at least so far, is comparable.

But the economic context surrounding it is very different.

In 2022, the UK economy entered the energy shock with very little spare capacity. Firms were running hot, labour markets were tight, and M4 money supply had been boosted by pandemic stimulus. Under those conditions, energy price rises fed quickly and persistently into broader inflation.

Today, the starting position is different.

The BCC survey measure of whole-economy spare capacity shows considerably more slack than existed ahead of the 2022 shock. Unemployment has been rising, wage growth — while still elevated — has been slowing, and core CPI is lower than it was in early 2022.

On paper, that suggests a more contained second-round inflation effect.

But there is a complication.

UK household inflation expectations remain elevated. Consumers appear to view the recent decline in inflation as temporary, leaving expectations highly sensitive to renewed energy price shocks.

Recent Bank of England survey data suggested some improvement before the conflict began, with one- and two-year inflation expectations falling modestly. But longer-term expectations remain stubbornly elevated, suggesting households believe the recent improvement in inflation may prove temporary.

One clue appears in Google Trends data. Searches for the word “inflation” remain far higher in the UK than in the US or the Eurozone. In continental Europe, attentiveness to inflation fell sharply after the 2022 peak. In Britain, it has barely moved.

Consumers are still watching prices closely — and behaving accordingly.

That leaves the Monetary Policy Committee in an uncomfortable position.

Rates have already been cut from their peak, and many forecasters — Pantheon included — expected a continued easing path, with Bank Rate potentially reaching around 3.5% by the end of 2026.

But a fresh energy shock combined with persistent inflation expectations narrows the room to manoeuvre.

Nominally, policy is easing.

In practice, the MPC is navigating an economy where inflation psychology remains fragile.

Bond markets are already beginning to reflect that tension. US 10-year Treasury yields have risen sharply since the conflict began as investors price the risk that higher energy costs could reignite inflation.

The same dynamic is increasingly visible in the UK. The yield on 10-year government bonds has climbed above 4.8%, rising faster than in most advanced economies. Higher gilt yields feed directly into mortgage pricing and can tighten credit conditions if lenders withdraw products while waiting for market stability to return.

In practical terms, this means that even if policy rates drift lower, financial conditions for households may remain tight.

When inflation expectations remain sensitive to shocks, the effective cost of capital can remain elevated even if nominal policy rates drift lower.

The AI Narrative Is Maturing

The first phase of any technology wave is defined by imagination.

The second phase is defined by economics.

Artificial intelligence now appears to be entering its second phase.

For the past two years, the dominant narrative has centred on generative tools — chatbots, writing assistants, and productivity copilots layered onto existing software. These tools captured enormous attention and capital.

But their measurable economic impact remains diffuse.

The conversation is now shifting toward autonomous agents: systems that do not simply respond to prompts but plan, act and iterate — navigating software environments and executing multi-step workflows.

This represents the difference between AI as a reference tool and AI as an operational participant.

The economic implications are significant, but they will not be evenly distributed.

Value will concentrate in two places.

First, infrastructure providers are building the compute and orchestration layers.

Second — and more importantly — businesses embedding agent capabilities into workflows where the cost of delay or human error is genuinely high: financial reconciliation, legal processes, clinical administration and supply chain management.

These are not glamorous applications.

But they share characteristics in which automation produces measurable returns: high labour costs, repeatable processes, and strong sensitivity to operational errors.

Those returns appear in margins, not in demonstrations.

If inflation expectations remain elevated and interest rates stay structurally higher than the last decade, the incentive to deploy genuine operational automation only increases.

The distinction the market will eventually draw is simple:

Between AI as narrative

and AI as margin.

This transition will also change how AI companies are ultimately valued.

Early in technology cycles, capital rewards adoption and user growth. Later in the cycle, markets begin to reward unit economics and workflow integration.

The winners of the next phase will therefore not be model developers alone.

They will be the companies that can embed intelligence into existing operational systems—the software that already controls pricing, logistics, finance, or customer workflows.

In other words, the strategic advantage will lie less in the model itself and more in where it sits within the workflow.

What the Consumer Is Actually Telling Us

While technology narratives accelerate and macro uncertainty builds, the real economy continues to generate signals that cut through the noise.

One of the most useful real-time datasets in the UK automotive sector comes from the monthly market intelligence published by Auto Trader Group. Their February market report and Retail Price Index provide a granular view of pricing, supply and consumer behaviour across both new and used vehicles.

The latest data tell a nuanced story.

February’s new car registrations reached their highest level since 2004, rising over seven per cent year-on-year. That is not the profile of a market under acute stress.

But the composition of that growth is more revealing than the headline itself.

Private buyers drove the increase—up 18%—while fleet registrations lagged. Fleet purchasing typically follows corporate planning cycles and tax incentives. Private demand reflects consumer confidence and access to credit.

When private buyers lead, it suggests a consumer still willing to spend — but selectively.

The used car market tells a complementary story. Vehicles are selling faster than a year ago, indicating a functioning market. But pricing behaviour is diverging in ways that reflect financial constraint.

Older vehicles — particularly those ten to fifteen years old — have risen sharply in price. Newer vehicles, particularly EVs, have fallen.

Consumers are stretching toward lower price points while premium segments face excess supply. In practical terms, the market is behaving exactly as economic theory would predict when real incomes remain under pressure — demand shifting down the price curve rather than disappearing entirely.

EVs illustrate this clearly. Discounts on new EVs are now averaging nearly twelve per cent — the highest level on record — while used EV prices continue to decline.

Demand is growing, but not yet fast enough to absorb supply.

Another important development is the rapid rise of Chinese manufacturers.

One in ten new cars registered in the UK in 2025 was a Chinese brand — more than double the previous year. Chinese manufacturers now account for a significant share of plug-in hybrid registrations and EV enquiries.

This is not simply a competitive story within the automotive sector.

It is a live example of industrial policy and manufacturing scale, translating directly into consumer choice.

Which is why the automotive market remains one of the clearest real-time barometers of the UK consumer economy.

(Data referenced from the February market intelligence and Retail Price Index published by Auto Trader Group.)

Where This Leaves the Investor

Step back, and the broader picture begins to take shape.

The energy shock has reintroduced genuine inflation uncertainty into a macro environment that was only recently stabilising. The Monetary Policy Committee’s room to ease policy is narrower than markets expected.

Capital, therefore, remains more expensive than it was for most of the previous decade.

At the same time, artificial intelligence is shifting from demonstration toward deployment. The companies that ultimately matter will not simply be those building models, but those embedding technology into high-value workflows.

And the real economy continues to adjust rather than break. Consumers are still spending and still transacting — but doing so more carefully, favouring value, practicality and affordability.

For investors, the implication is straightforward.

Capital is no longer free, technology narratives are maturing, and consumers remain price sensitive.

The most durable opportunities will therefore emerge where technology improves real operations, where pricing power survives economic pressure and where economic value is visible in cash flow rather than projections.

Markets always move through periods where narrative dominates analysis.

But eventually economic gravity reasserts itself.

And when it does, the gap between story and substance becomes very clear.

In periods like this, when the macro environment can shift meaningfully in a week, it becomes even more important to step back and reassess the forces shaping markets, capital, and the real economy.

Have a great week!