# Perception, reality, and a record high _A friend asked me why markets are so buoyant when everything seems so bad. It was a good question, and the answer is sitting in the UK investment data almost nobody reported this week._ Neil Woodford · 14 August 2026 · 8 min read ![The Solar Eclipse 2026](https://cdn.sanity.io/images/v3acfbvo/production/06b0a206782488d6ae3d8920d976d7712dc024cc-4096x2412.jpg?w=1600&fit=max&auto=format) --- Sitting down to reflect on this week, I found myself musing on the perception versus reality conundrum in financial markets, and indeed in the economy more broadly, that seems to be an ever-present and growing feature of modern life. It was prompted, in a way, by a social engagement I had this week with a close friend from school. He is much brighter than I am and pursued a career in medicine, where he excelled, and retired earlier this year. He is well informed, well read, and stays in touch with economics and politics, and because he has several grown-up children, is also attuned to the social norms and views of younger generations. Whilst downing a soothing half of Hawkstone lager in 34-degree heat, he asked me to explain why, when everything seemed to be so bad, financial markets, and especially US equities, were so buoyant. _[Embedded media](https://www.cnbc.com/2026/08/12/stock-market-today-live-updates.html)_ That was on Tuesday. On Thursday, the [S&P 500 closed at 7,798.99](https://www.cnbc.com/2026/08/12/stock-market-today-live-updates.html), an all-time high, having traded above 7,800 for the first time in its history. It was the twenty-fifth record close of a year that has so far contained a war, the highest oil price ever recorded and a closed Strait of Hormuz. I could not have engineered a better answer to his question if I had tried. It was a really good question and highlighted to me something which I drone on about all the time. The media narrative which we all consume from time to time presents a glass half empty perspective on most things at best, and all too frequently an apocalyptic vision of the rest. I wouldn't mind so much if any of it was true, but on the subjects that I spend my time researching, reading about and collecting data on, typically it isn't. In fact, all too often the popular narrative is wilfully dishonest. Of course, things could always be better. I can think of a very long list of things I would like to change right now, but equally when I think about all the issues I have spent some time on recently, like [inequality](https://www.noisecancelling.co/read/when-small-men-begin-to-cast-big-shadows), the [nation's finances](https://www.noisecancelling.co/read/uk-economy-briefing-july-2026), [affordability in the housing market](https://www.noisecancelling.co/read/slaying-popular-housing-myths), [inflation](https://www.noisecancelling.co/read/why-the-gulf-war-bears-are-wrong-on-oil-and-inflation), the [energy market](https://www.noisecancelling.co/read/the-energy-price-shock-that-wasn-t), or advances in medicine, longevity and child poverty, or the capability of technologies we all take for granted, a more balanced perspective about the state of the world gradually comes into view. I don't think my problem is naivety, I think the modern world is infected with a distorting mind virus (promoted by social and some mainstream media) that repeatedly and incessantly drains us all of optimism. Although I am totally realistic about the market for the truth, equally, I think it's my job with Noise Cancelling, as much as I can, to always focus on it through the medium of facts and data. ## Oil is flowing once again Back to the politics, economics and financial market developments this week. Whilst it seems to command less and less attention, the apparent truce in the conflict between the US and Iran has continued this week despite one or two exchanges of fire. Given the conflicting narratives emanating from the US, Iran and from mediators in Pakistan, Oman and Qatar, it's really hard to know what's going to happen next, but what I can observe is what has happened this week. Against a backdrop of incompatible rhetoric from these parties the reality is that oil does appear to be flowing through the Strait of Hormuz, and the mitigation steps producers in the region have resorted to appear to be working. So much so that this week the US energy secretary, Chris Wright, put the [seven-day average for oil leaving the Strait at "almost 9 million barrels per day"](https://gcaptain.com/trump-administration-says-gulf-oil-flows-recover-to-15-million-barrels-a-day/), and, adding in the 5 to 7 million barrels a day now leaving the region through newly upgraded pipelines and export facilities, total flows out of the Gulf at approximately 15 million barrels a day. He went further, and said that on Sunday alone more than 20 million barrels left the region, which he described as above the pre-war average. _[Embedded media](https://boereport.com/2026/08/13/the-us-says-more-oil-is-leaving-the-middle-east-but-is-it-really-russell/)_ My research suggests that this is not above the pre-war average but pretty much bang in line with it. I would add that Mr Wright's numbers are contested: the tanker trackers who do this for a living put seaborne flows through the Strait at [somewhere between 5 and 7 million barrels a day](https://boereport.com/2026/08/13/the-us-says-more-oil-is-leaving-the-middle-east-but-is-it-really-russell/). Whether the true figure is nine or six, the fact is that effective and rapidly implemented mitigation, and human ingenuity, combined with the threat or reality of military capabilities, is delivering oil out of the region in volumes that nobody in the consensus thought possible in March. The consensus was wrong about the effects of this conflict in the first half of this year and, based on what I'm seeing now, they will continue to be wrong in the second half too. One final observation is the shift in President Trump's public position on the conflict this week. He is now saying that in effect the economic sanctions and oil blockade are exerting sufficient pressure on the Iranian regime that there is no requirement to resort to further military conflict. Clearly many are deeply sceptical about this claim, and yet it seems that the pressure is building on Iran, which will be acutely conscious of the fact that oil appears to be leaving the region in volumes that make a global energy price shock even less likely. ## US inflation falls, UK GDP rises Away from the conflict, the most important economic data released this week for global markets were [the US inflation numbers](https://www.cnbc.com/2026/08/12/cpi-inflation-report-july-2026.html). In summary, despite the stresses on energy prices in the US economy, inflation fell to 3.4% in July, down from 3.5% in June. Interestingly, petrol prices fell in the month. Core inflation also fell, from 2.6% to 2.5%. These data had an immediate effect on financial markets, with the broad view that they took the pressure off the Fed to raise rates at its next meeting in the middle of September. _(Neil in the margin: The US Federal Reserve, whose rate-setting body meets roughly eight times a year. Softer inflation lets it hold or cut rather than tighten — generally a tailwind for equities.)_ Important [UK GDP data were also released yesterday](https://www.noisecancelling.co/read/june-gdp-and-the-forecasts). In summary, once again, (yawn) growth in June was better than the consensus expected. Instead of the flat number expected, and several forecasters were looking for a small fall, the economy expanded by 0.3%, taking the second quarter to 0.4% and year-on-year growth to 1.2% against the 1.1% expected. Combined with the first quarter's 0.6% outcome, that means in the first half the economy has grown by 1%, more than three times faster than the Bank of England's woefully pessimistic 0.3% expectation. Whilst the headline was good, there were also some interesting numbers in the detailed release, but the ones that really caught my eye were those showing strong growth in business investment against expectations of a fall. _(Neil in the margin: Worth noting the Bank's forecast was for the whole year, so beating it in the first half alone is the striking bit. Central-bank growth projections have a long history of being revised after the fact.)_ _(Neil in the margin: Business investment — spending on plant, machinery, buildings and IT — is the component economists watch as a proxy for confidence in the future, and Britain's supposed chronic weakness here is a well-worn declinist trope.)_ _I wrote about the GDP release yesterday:_ [June's GDP number, and what it does to the forecasts](https://www.noisecancelling.co/read/june-gdp-and-the-forecasts) — The economy grew when almost nobody expected it to. The interesting part is what that does to a consensus sitting below 1%. So, not only was gross fixed capital formation up 1.2% in the quarter against an expectation of a decline of 0.1%, but total business investment in the second quarter was up 1.7% against an expected decline of 0.3%, and finally year on year up 0.8% instead of a fall of 1.3%. I think this is very significant. The consensus narrative about investment in the UK is generally downbeat. _(Neil in the margin: The national-accounts measure of total investment in fixed assets, public and private combined — broader than the business-only figure. I use both here because the wider gauge tells the more flattering story.)_ I did a Google search just before writing this piece and came across the familiar narrative: "the UK's performance on business investment remains underwhelming", or "why doesn't the UK invest enough", or this from the Bank of England's April Monetary Policy Report, which suggested that despite 0.9% growth in business investment in the first quarter, "outlook expectations" (another unmeasurable load of nonsense) pointed to a softening over coming quarters due to eroded business confidence and higher financing costs following the geopolitical energy shock. Well, it was wrong. Business investment grew, and rather strongly. The real picture on business investment might surprise those following the consensus view, perhaps best represented by NIESR, who said recently that UK business investment growth "has remained shallow and vulnerable". I thought these two charts might be the best ones to use to tell the real story on investment. _(Neil in the margin: The National Institute of Economic and Social Research, Britain's oldest independent economic think tank and a reliable source of gloomy forecasts. Neil clearly enjoys quoting them just before the data confounds them.)_ ![UK investment spending is near a 65-year high](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chartDoc.uk-investment-share-gdp-c483647c7012-light.png) _Total investment spending, public and private, is running at 19.7% of GDP. That is the third highest of the 266 quarters since 1960, beaten only by the peak of the late-1980s boom. It is worth holding that against a consensus narrative in which Britain does not invest._ Clearly, after a slump around the financial crisis, total investment spending, public and private, in the UK has grown consistently and is now close to all-time highs as a share of GDP going back to 1960, when manufacturing accounted for 36% of the economy rather than the 8.5% it does now. On the ONS's own numbers, the second quarter reading of 19.7% is the third highest of the 266 quarters since 1960, beaten only by the peak of the late-1980s boom. Given that the UK is a heavily service based economy, and considerably more so than all of its peers, this is significant. ![Business investment is back near its 2016 peak](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chartDoc.uk-business-investment-share-gdp-74e3a83bfac4-light.png) _Business investment is running at 11.0% of GDP, within two tenths of a percentage point of its 2016 high and the seventh highest of the 118 quarters since the series began in 1997. The single-quarter spike in 2005 is a one-off transfer of assets in the official data, not a burst of capital spending._ And finally, despite all those depressed corporate captains preoccupied with elevated uncertainty, business investment has followed a similar trend and, at 11.0% of GDP, sits within two tenths of a percentage point of its 2016 high. ## Calmer financial markets Having failed to keep this Weekly short, I won't dwell too much on what's been happening in financial markets this week. Briefly, markets have calmed and the extreme volatility witnessed recently, especially in leading AI sectors, has subsided. Clearly the good inflation report in the US has helped, it is what carried the S&P to Thursday's record close, as has the relative calm in the Persian Gulf, albeit there is ongoing nervousness. _[Embedded media](https://artificialanalysis.ai/articles/grok-4-6-benchmarks-and-analysis)_ To conclude, I should also mention the story that [Anthropic is preparing to IPO in the autumn](https://qz.com/anthropic-ipo-2-trillion-valuation-october-081326), which is broadly as expected, but what grabbed my attention was the mooted valuation range of $2-3trn, which is considerably more than 2x its current value. If true this would break all the records recently established by SpaceX, and place the business, which after accounting funnies is loss making, on a remarkably high multiple of its revenues, which it must be said are growing rapidly. _(Neil in the margin: When a company is loss-making you cannot value it on earnings, so investors fall back on price-to-sales. A very high multiple bakes in years of flawless growth — a fragile foundation if that growth stumbles.)_ _[Embedded media](https://youtu.be/SeMYsZqYeFw)_ What is really interesting though is that leadership in the frontier model space appears to be changing week by week. The latest model from Grok, 4.6, arrived on Wednesday, and it is right up there with the best of them. On [Artificial Analysis's composite intelligence index](https://artificialanalysis.ai/articles/grok-4-6-benchmarks-and-analysis) it scores 61, against 63 for Anthropic's Claude Opus 5 and 62 for Fable 5, and level with OpenAI's best. On the agentic measures, which are much closer to what a corporate customer is actually buying, it is second only to Opus 5 on real-world knowledge work and statistically indistinguishable from Fable 5, top two on multi-turn customer service, and level with the leaders on software tasks. It also finishes long jobs in roughly half the steps and a quarter of the input tokens. And it is priced at $2 and $6 per million input and output tokens against $5 and $25 for Opus 5, more than 60% below. Given that, with the right tools, switching can be executed with a keystroke, the concept of customer loyalty or stickiness just doesn't apply in this industry, yet. ## What to look out for next week Next week is busy for macro data on both sides of the Atlantic. Labour market data in the UK on Tuesday will attract a lot of attention, as will UK July inflation data on Wednesday (I expect consensus will be wrong again), the minutes of the July FOMC meeting the same day, and government borrowing and retail sales numbers on Friday. Thankfully, after a few weeks of countless corporate results, next week is very quiet.