UK markets recovered towards the end of the week to trade at 10,446 points at the time of writing, up 1.04%.
Data released on Friday showed UK GDP contracted 0.1% month-on-month in April 2026, in line with expectations, following a 0.3% rise in March. This marked the first contraction since August 2025, as the effects of the war in Iran are felt closer to home. The year-on-year reading showed a 1.2% expansion in GDP, slightly below forecasts of 1.3%.
The UK housing market remained under pressure in May, although several key indicators suggest activity may be starting to stabilise following months of decline, according to the latest Residential Market Survey from the Royal Institution of Chartered Surveyors. New buyer inquiries remained firmly negative, with a net balance of -34%, unchanged from April. While demand continues to weaken overall, RICS noted this was the first time since January that the measure had not deteriorated further, potentially signalling that market conditions are beginning to find a floor.
Sales activity also remained subdued. The agreed sales indicator held steady at a net balance of -37%, indicating that more survey respondents continued to report falling sales rather than rising transactions. However, the pace of decline showed no further worsening. At the same time, the average time taken to complete a sale increased to 21.5 weeks, the longest recorded since RICS began collecting the data in 2017.
House prices continued to edge lower nationally, with the headline price indicator remaining at -35% for a second consecutive month. Despite short-term caution, expectations for house prices over the next 12 months improved modestly.
UK retail sales grew by 3.7% year-on-year in May, their strongest annual growth since April 2025, rebounding from an April slump. Growth was driven by a late-May heatwave and bank holidays, which prompted a surge in sales of summer clothing, barbecue supplies and online spending. While domestic spending rose, travel-related expenditure fell. Airline spending dropped 12.9% year-on-year, and total travel spending declined for the third consecutive month as consumers held back on big-ticket trips due to economic uncertainty.
Commodity markets
In the commodity markets, Brent Crude oil fell more than 4% to around $86.5 per barrel at the time of writing, the lowest since early March, as hopes for a peace agreement between the US and Iran disrupted energy markets. Iran’s Mehr News Agency reported that a 14-point draft agreement would include the lifting of oil sanctions and a re-opening of the Srait of Hormuz within 30 days.
President Trump said a deal could be signed as soon as this weekend, which would release frozen Iranian assets, and lead to the withdrawal of US troops in the region. Despite improving sentiment, tensions remain in the Strait as drones targeting commercial vessels have been reported in the area, and Iran has threatened to close the waterway should conditions worsen.
Gold prices eased below $4,200 an ounce on Friday but maintained most of its gains from the previous session as the prospect of a deal between the US and Iran led to reduced concerns over inflation and potential interest rate hikes. Gold continues to trade carefully given the conflicting data released this week, as US Producer Prices increased 6.5% year-on-year in May, highlighting the inflationary effects of the war, however, with potential de-escalation in place, these inflationary effects could quickly abate.
Equity markets
US equity futures were slightly positive on Friday as investors looked ahead to SpaceX’s highly anticipated initial public offering (IPO) and weighed up the possibility of easing tensions in the Middle-East. In Thursday’s regular trading session, the Dow Jones Industrial Average rose 1.39%%, the S&P 500 gained 1.30%, whilst the Nasdaq Composite rose 2.29%. SpaceX is set to be the largest IPO in history, raising roughly $75bn and implying a market valuation of $1.78trn.
US inflation jumped to a new three-year high of 4.2% in May as Donald Trump’s Middle East war has sent energy prices soaring for Americans. The figure from the Bureau of Labor Statistics was in line with expectations from a Bloomberg poll of economists and up from April’s year-on-year rate of 3.8%. Core inflation, which strips out volatile food and energy prices, was 2.9%, up from 2.8% the previous month. Price pressures have risen sharply since the conflict began in late February, when inflation sat at just 2.4%.
The cost of petrol and diesel has risen by about 40%, according to the AAA motoring group. Fuel prices continued to be the primary driver of inflation in May, with energy accounting for more than 60% of the 0.5% monthly rise in prices. The inflationary burst from the conflict has also spilled into other parts of the US economy as the cost of transporting goods such as groceries across the country escalates. Food prices continued to rise in May, with products such as coffee, fruit and vegetables and baked goods all climbing. However, some other groceries that had risen sharply in recent months, such as dairy, meat and eggs, fell slightly.
The inflation data came after last Friday’s strong employment report that suggested the US jobs market had begun to stabilise after a rocky 2025. Americans have grown increasingly frustrated with President Trump over the domestic impact of the conflict. A Financial Times poll released this week found that 68% of voters disapproved of his handling of inflation and the cost of living, up 10 points from April. Federal Reserve officials have voiced concern over the price growth, with some favouring a shift towards higher interest rates. Investors are betting that policymakers will be forced to raise borrowing costs before the end of the year.
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