"Barring further shocks…" has become an essential disclaimer for any attempt to predict the global geopolitical and economic outlook. The opening months of 2026 have been marked by heightened geopolitical risk, renewed trade uncertainty and global energy supply disruptions following the Strait of Hormuz closure; reshaping expectations for global growth, inflation and interest rates.

Building on from our Big Picture for Business 2026 report, this Q1 snapshot examines what has changed in the global outlook so far – from the impact of conflict in the Middle East and evolving tariff regimes to accelerating AI investment – and what these developments mean for business leaders as they recalibrate plans for the year ahead.

Big Picture for Business 2026: the five core trends

At the start of 2026, in our Big Picture For Business 2026 report, we anticipated five core trends shaping the global outlook in 2026:

  1. Global trade being reshaped – influenced by tariffs and trade deals
  2. Slower economic growth – but with resilient financial markets
  3. Falling inflation – but with an uncertain outlook for interest rate cuts
  4. Fractured geopolitics and national political pressures
  5. AI adoption and investment - driving markets and influencing business strategy

We have witnessed significant events unfold across all of these key trends in Q1. Business leaders are faced – yet again – with a need to recalibrate their plans and priorities to reflect a changing global outlook in both the short and medium term.

Key global economic and geopolitical developments reshaping 2026

What's changed so far? In early 2026, we've already seen major trade disruption, geopolitical risk and a sharp acceleration in AI investment, driving renewed volatility across global markets. Key developments in 2026 so far have included:

  • US/Israel military action against Iran has sparked a global energy crunch – with the closure of the Strait of Hormuz blocking 20% of global oil and liquefied natural gas flows and other critical supplies, such as fertiliser and helium.
  • US foreign policy has deepened fractures with its allies and added to geopolitical instability – with President Trump's controversial proposal to 'buy' Greenland from a fellow NATO member (Denmark) compounded by NATO nations' reluctance to support US interventions in Venezuela and Iran.
  • US/global tariffs are back up in the air – with the US Supreme Court striking out the Trump administration's April 2025 'liberation day' tariffs as illegal, prompting the launch of a new 10% global US tariff, and casting doubt over whether US 'trade deals' struck with the EU, UK and others in 2025 will now hold.
  • Global trade diversification has gathered pace – with the EU concluding new trade deals with India and the Mercosur South-American trading bloc, and the UK and Canada (amongst others) pursuing closer trade relations with China to rebalance reliance on US markets.
  • The AI investment boom has moved up another gear – and AI's disruptive potential is starting to play into corporate valuations. The 'Big Four' of Amazon, Microsoft, Alphabet and Meta have pledged c$650 billion of AI-related investment in 2026, 60% up on 2025. More broadly, 'agentic AI' breakthroughs have caused some industry segments to experience sudden valuation declines – as investors assess where AI is poised to damage/replace traditional business models.
  • High uncertainty has (so far) slowed the expected 2026 acceleration in dealmaking. Despite a series of M&A 'mega-deals' in Q1 2026[1] overall M&A deal volumes were down 17% year-on-year, with the value of private equity acquisitions and exits also falling by around a third from the closing quarter of 2025.

Slower economic growth and rising inflation: how will business leaders be affected?

Heightened market uncertainty has already adjusted the outlook for 2026:

  • Economic growth is likely to slow – through the energy crunch impact and hit to confidence.
  • The shape of global growth in 2026 will also be impacted – with an inevitable short-term hit to GDP growth in the Middle East; the US remaining resilient but facing higher inflation; and growth in the UK, Europe and Asia impacted by greater exposure to energy import prices.
  • Inflation will stick above target for longer – with the OECD forecasting that the US, UK and EU will now see inflation rise to 3%+ in 2026, rather than anchoring back to 2%.
  • Interest rate cuts are now unlikely in the short term – reversing previous market expectations of further cuts in the US and UK during 2026.
  • Financing conditions will be tighter – given the deteriorating inflation, rates and growth outlook.

For business leaders, this means navigating slower demand growth, sustained cost pressures and tighter financing conditions at the same time. Strategic decisions on investment, pricing, hiring and capital allocation will need to be made against a backdrop of reduced policy support and higher ongoing uncertainty.

Ceasefire or escalation: what next for global markets and growth?

At the time of writing, much still hinges on the resolution (or not) of the US/Israel-Iran conflict.

If some form of ceasefire deal holds – with the Strait of Hormuz re-opened – we should see a sustained market 'relief rally' and bounce in business confidence. That said, the energy shock is expected to take at least three to six months to unwind. Oil prices are unlikely to drop to their pre-war position in 2026.

If the conflict reignites and runs into the second half of 2026 – with deeper damage to energy infrastructure and supply across the Middle East – a global recession becomes a real prospect. The oil price would likely rise above US$150/barrel, inflation could surge 2%-3% (or more) above target, and interest rate rises would become likely.

Although the Middle East conflict is – understandably – dominating headlines there are also other global and national uncertainties ahead. These include the run-up to the US mid-term elections in November, and local elections in the UK in May. The latter could prompt a leadership challenge to the sitting UK Prime Minister - creating fresh uncertainty over the Government's future tax/spending policies.

How can businesses respond to geopolitical uncertainty?

For business leaders there are both operational and strategic considerations as we navigate highly disruptive times.

From an operational point of view, the following are high on the agenda:

  • Cost control and cash-flow – to mitigate the impact of rising inflation and broader (but no less important) 'business as usual' cost pressures such as the April 2026 changes in UK pay and employment rules. Actively reducing energy use may come into sharper focus if the energy shock is not resolved.
  • Financing – with 'higher for longer' interest rates influencing how to fund both day-to-day cashflow needs and longer-term investment/M&A.
  • Supply chain / contract management – from ensuring resilient and timely supplies of crucial input materials through to the potential operation of force majeure clauses flowing from the Middle East conflict.

From a strategic perspective, geopolitical volatility is becoming the new normal. Rigid long-term business planning is shifting towards constant scenario planning and adaptability. Deferring key decisions indefinitely due to 'uncertainty' can risk losing competitive advantage and momentum.

More positively, developments in Q1 2026 have reinforced some long-term market growth opportunities. The defence and energy transition sectors will continue to benefit as nations look to bolster both military and energy security. The electric vehicle (EV) market also looks set to gain as motorists rue sky-high prices at the petrol pump. The AI boom is driving both huge infrastructure investment and widespread corporate innovation. And market volatility creates scope for opportunistic M&A moves.