JP Morgan has warned that the conflict in the Middle East represents the most significant near-term uncertainty facing UK capital goods companies, even as the sector's recent earnings season came in broadly in line with expectations.
The bank said results from 11 companies were mixed, with six seeing share price moves of 5% or more on the day of reporting, and average earnings per share estimates for 2026 and 2027 revised down by 2% and 1% respectively since the start of the year.
JP Morgan said it does not expect a widespread freeze in spending on power generation, grid infrastructure or data centre projects despite the Middle East accounting for around 4% of sector revenues, and noted that most other end markets are at or near cyclical troughs after a prolonged downturn.
The bank said the sector has also shown a consistent ability to offset cost inflation, providing some reassurance on margins.
However, JP Morgan cautioned that recoveries in consumer-exposed markets, general industrials and residential construction could be delayed as higher inflation and interest rates weigh on the broader global economy.
Companies most exposed to oil and gas and the Middle East face the clearest near-term risks, though the bank said rising energy security concerns could ultimately drive higher medium-term investment in the region.