UK markets were down this week, with the FTSE 100 Index falling 1.14% to 10,761 points at the time of writing. The UK economy grew by 0.4% in the second quarter, a relatively robust performance that suggests businesses are weathering threats including the Gulf-related surge in energy prices. Thursday’s figure from the Office for National Statistics was in line with analysts’ forecasts and compared with a growth rate of 0.6% in the previous three-month period. In June alone, GDP grew by 0.3%, with signs that the early weeks of the World Cup boosted activity for companies including restaurants, alcohol manufacturers and television producers. That followed zero growth in May, a downward revision from the previously reported increase of 0.1% for that month. The figures will come as a relief to new Prime Minister Andy Burnham, who has pledged to broaden growth across more of the country and tackle the cost-of-living crisis. The UK economy is expected to expand by 1.1% this year, according to the Bank of England’s latest forecasts, marginally below the 1.3% pace recorded for 2025. Nevertheless, rising inflation is set to take a toll on households’ real incomes, with the Bank of England predicting inflation will rise from 2.6% to 3.2% towards the end of the year. Meanwhile, the Iran war continues to threaten the economy. Internal UK Treasury scenarios suggest that if the Strait of Hormuz remains badly disrupted until the end of the year, growth in 2027 could be dragged down to just 0.3%, according to people familiar with the figures. While monthly growth in June was lifted by the World Cup, the hot weather has had a more mixed impact. The second-warmest June on record came as a boost for retailers and recreation providers but was cited as a negative in construction and in education, where some schools closed because of the heatwave. On the expenditure side, business investment jumped 1.7% in the latest quarter, while there was a 0.3% increase in real household consumption. Government consumption fell in the quarter, suggesting GDP growth has been private-sector led, a positive sign for the economy according to analysts, as it indicates that growth could be more sustainable.
Commodity markets
In the commodity markets, Brent crude futures traded around $88 per barrel on Friday and are set for a weekly rise, after deadly attacks on vessels in the Red Sea and Gulf of Oman heightened concerns over risks to global shipping routes. Iran-backed Houthi rebels killed six people in an attack on a cargo ship in the Bab el-Mandeb Strait on Tuesday, marking the first reported fatalities from attacks on Red Sea shipping in more than a year. Hours later, US forces said they fired missiles at a container ship that allegedly tried to break Washington’s blockade of Iranian ports in the Gulf of Oman. The incidents underscore the growing impact of the nearly six-month-old war on two key global shipping routes, even as diplomatic efforts towards reopening the Strait of Hormuz show signs of progress. Pakistan has expressed optimism that Washington and Tehran could reach an accord, but markets are still waiting for concrete progress. The International Energy Agency said on Wednesday that global oil demand was set to fall further than previously expected this year, amid a deepening impact from the closure of the Strait of Hormuz. Gold prices traded around $4,340 an ounce on Friday, extending losses from the previous session as investors locked in profits while assessing the Federal Reserve’s policy outlook and developments in the Middle East. Markets are now pricing in a 35% chance of a quarter-point rate hike in September, down from a 55% chance from a week earlier. Meanwhile, central-bank buying continued to underpin gold demand. China’s central bank added around 20 tonnes to its reserves in July, marking its 21st consecutive month of purchases. Global central banks bought an estimated 289 tonnes in the second quarter.
Equity markets
US equity market futures were little changed on Friday following major advances in Thursday’s regular trading session. The Dow Jones Industrial Average climbed 0.13%, whilst the S&P 500 rose 0.65% and the Nasdaq Composite gained 0.81%. The consumer price index figure from the Bureau of Labour Statistics fell to 3.4% in July, driven by declining petrol prices, despite the fallout from the war in Iran continuing to reverberate across the economy. Core inflation, which strips out volatile food and energy prices, fell from 2.6% to 2.5. Even as petrol prices surged later in July as a result of tensions with Iran, they were down 2.9% for the whole month versus June levels. The data comes as the Federal Reserve faces growing calls to raise rates to tame inflation driven by the war’s disruption to energy supplies, which has exacerbated price pressures stemming from tariffs and the AI boom. Long-term bond yields jumped last month after policymakers voted to hold rates steady at their July meeting. Poorer Americans are struggling to make ends meet as the Iran war has worsened cost-of-living strains, according to top Federal Reserve official Susan Collins, who warned that the central bank may need to raise rates to cool inflation. Collins said that businesses and households in the US north-east were being squeezed by inflation that has been above the central bank’s 2% goal for more than five years. New England relies much more heavily on heating oil in the winter than other parts of the country and uses oil as a backup fuel for electricity generation, leaving it especially exposed to rising crude prices. Markets have grown concerned that the Federal Reserve will struggle to contain the inflationary fallout, and early signs are already starting to show, with consumer price inflation already hitting a three-year high of 4.2% in May. US borrowing costs jumped last month after it opted not to raise rates and three policymakers broke with the majority to call for an immediate increase.