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Energy prices have jumped in mid-2025, adding fresh pressure to financial markets, UK households, and pension savings. Gas and electricity bills are now more than 20% higher than they were this time last year. The rise is mainly due to supply problems in Europe and a hot summer that’s pushed up energy use.
Because of this, many investors are rethinking how and where they invest. With inflation still high and interest rate cuts now less likely, the rest of the year looks more uncertain.
Higher energy costs are also pushing up prices in other parts of the economy, making goods and services more expensive and leaving people with less money to spend.
In This Guide
Markets React as Inflation Stays Stubborn
Higher energy prices are making it more challenging for inflation to decline. Although price growth has slowed since peaking in 2022, it is still above the Bank of England’s 2% target. Energy costs are a significant factor in transportation, food production, and manufacturing, exerting pressure on the entire economy.
Some companies are coping better than others. On the FTSE 100, big energy firms like Shell and BP have seen their share prices rise. Shell’s stock is up nearly 12% since January, driven by strong global demand and higher margins.
Meanwhile, sectors like retail and hospitality are struggling. These businesses face rising costs and weaker consumer spending, which is hurting profits – especially for smaller companies that have fewer options to cut expenses. Investors are now paying closer attention to which businesses can absorb higher costs and which ones are being squeezed.
UK Savers See Uneven Results
Big investment firms can move quickly when markets shift. But ordinary savers are more exposed. Many UK pensions and Stocks and Shares ISAs are composed of mixed funds, which are now yielding mixed results.
Funds with large holdings in US tech are still growing, but those with more UK retail stocks have been flat or falling. Inflation-linked bonds, such as gilts, are gaining popularity again. But with high demand, their returns stay quite low.
Some savers might not notice changes in their pension, especially if they use default workplace funds. It’s a good reminder to check where your money is invested, as rising energy prices are affecting each sector in different ways.
David Grant, an investment adviser in London, says, “Energy prices now affect everything from company profits to interest rates. We’re seeing very mixed results across the market.“
Commodities and Property Back in the Spotlight
Investors are also turning to real assets and commodities to protect against inflation. Gold is up more than 8% since April, helped by concerns about global stability and uncertainty over future interest rates. Oil remains strong too, with high demand and supply concerns keeping prices elevated.
In property, funds that focus on energy infrastructure or logistics are attracting attention. These tend to offer more stable income and are better at handling inflation pressures. Interest is also returning to renewable energy projects, which had seen slower investment during the 2023 tech rally.
ESG Funds Face Tough Decisions
Rising energy prices are making it increasingly difficult for ESG (Environmental, Social, and Governance) funds to adhere to their environmental goals. Many investors continue to seek opportunities to support ethical and climate-friendly companies. But this year, oil and gas firms have made bigger profits, which has led some pension funds to slow down their move away from fossil fuels.
This change has started a debate. Staying out of the energy sector could lead to smaller profits. Others think keeping oil shares slows down progress towards green energy. The Financial Conduct Authority says fund managers must clearly explain their ESG choices, especially under new rules that protect regular investors.
What This Means for UK Investors
Energy prices are no longer just a household concern. They’re now a major factor in how UK investments perform. Whether you have a private pension, an ISA, or a diversified portfolio, the effects are starting to show.
Tracker funds and passive investments may behave unpredictably, depending on which sectors they include. Actively managed funds might respond more quickly, but that doesn’t mean they’re risk-free. Every move carries trade-offs.
Real estate, gold, and inflation-linked bonds are gaining popularity again, but none are guaranteed winners. The safest route, as always, is to spread investments across different assets and sectors.
With interest rate cuts now likely to be delayed, and central banks keeping a close eye on energy trends, the second half of 2025 could be just as unsettled. For UK investors, staying informed and being ready for continued volatility will be key.
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