UK markets pulled back this week, with the FTSE 100 Index falling by 1.92% to trade at 10,484 points at the time of writing.
Andy Burnham needs to tackle the UK’s “unsustainable” public finances quickly to minimise the risks to the economy, the UK’s fiscal watchdog has warned. Even if the UK takes urgent action, the Office for Budget Responsibility (OBR) said spending cuts or tax rises equivalent to more than £100 billion a year would be required to stabilise debt at 95% from 2030-31 onwards.
The OBR said that on current policy, Britain’s public debt would move on to “an unsustainable and ever-rising path” in almost all scenarios as pressure rose to spend more on health, social care and the state pension. The longer debt is allowed to rise, the greater the risk of higher interest rates compounding the challenge or a sudden adverse investor reaction taking place.
The warnings in the OBR’s annual fiscal risks and sustainability report come as Burnham, the newly elected MP for Makerfield, prepares to take over as Prime Minister later this month against a backdrop of weak economic growth. Burnham’s allies have signalled he wants to find ways of boosting public investment as he seeks to bolster growth around the country.
The OBR report painted a grim economic picture as it warned that the UK was in a “challenging position” relative to its peers. The increase in the UK’s public debt as a share of GDP has been one of the steepest of any advanced economy over the past two decades.
Net debt has nearly tripled as a share of GDP since 2005, and the debt-to-GDP ratio is now 45 percentage points higher than the advanced economy average. One reason for this is the UK’s aging population. The OBR expects spending on health to rise from 8% of GDP in 2030-31 to 13% of GDP by 2075-76, partly driven by demographics but also because productivity growth tends to be slower in health than in the wider economy.
The watchdog expects a similar rate of growth in spending on social care, while the only area to see easing pressure is education. Spending on the state pension is on track to rise from 5% of GDP to about 9% of GDP over the same period. As a result, government spending excluding interest is set to rise from 40% of GDP in 2030-31 to 49% by 2075-76 in the OBR’s central scenario.
Commodity markets
In the commodity markets, Brent crude futures traded around $76 per barrel on Friday and are set for a weekly rise after the US launched fresh strikes on Iran in response to Tehran’s attacks on commercial shipping in and around the Strait of Hormuz.
Iranian armed forces launched attacks on US military infrastructure in Gulf states on Thursday following US strikes on Iran’s southern coastal and eastern provinces, further straining the three-week-old ceasefire. US President Donald Trump signalled this week that he was no longer interested in negotiating a deal with Iran. Prior to that, he also said that the ceasefire between Iran and the US was “over”, following another wave of attacks in the Middle East.
The market is again being forced to price the risk that renewed attacks on shipping, or a broader breakdown in US-Iran relations, could slow the normalisation of flows through the Strait of Hormuz. As the Strait is one of the most important energy chokepoints in the world, even limited disruption can have an outsized impact on oil prices, freight costs and market sentiment.
Gold prices traded around $4,100 an ounce on Friday and are on track for a weekly decline, on concerns that escalating US-Iran tensions could fuel inflation and keep the US Federal Reserve on a hawkish monetary policy path.
Equity markets
US equity markets were mixed on Friday after the major indexes advanced in the previous session, supported by a strong rally in semiconductor stocks. In Thursday’s regular trading session, the Dow Jones Industrial Average rose 0.27%, the S&P 500 advanced 0.81%, whilst the Nasdaq Composite gained 1.30%.
Federal Reserve policymakers were split over the rate outlook as price pressures dominated Kevin Warsh’s first meeting in charge of the US central bank. Minutes of the June discussion, released on Wednesday, showed that many members of the rate setting Federal Open Market Committee remained worried the central bank would struggle to bring inflation back to its 2% target.
Most of those present pointed to potential scenarios in which the labour market remained stable while artificial intelligence fuelled demand, the war in the Middle East and the effects of tariffs kept price pressures elevated. In such scenarios, almost all participants indicated that some policy firming would likely be warranted to return inflation to 2%, the minutes read. The meeting was held on June 16-17, before resurgent tensions in the Middle East.
Oil prices hit a two-week high on Wednesday as investors braced for renewed conflict following revived concerns about a fresh burst of global inflation. The minutes came on the same day that the IMF warned the threat of fresh hostilities in the Middle East driving up global inflation, “looms large”.
Despite the shift in language in the post-meeting statement, most committee members also pointed to potential scenarios in which inflationary pressures could dissipate. In such scenarios, almost all of these participants noted that it would likely be appropriate to maintain or eventually lower the target range for the federal funds rate, the minutes read.
Elsewhere, the US trade deficit widened sharply to $77.6 billion in May 2026, from a revised $54.6 billion in April, broadly in line with market expectations of a $78.5 billion shortfall. The gap was the largest since March 2025, as imports climbed 3.3% to $395.3 billion, their highest level in more than a year.
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