UK markets were little changed this week, with the FTSE 100 Index falling 0.2% to trade at 10,565 points at the time of writing. The International Monetary Fund has cut Britain’s growth prospects for 2026 by more than any other G7 nation as the fund warns that the country faces a heavy blow from the global energy crisis.
GDP is expected to expand 0.8% this year, 0.5% below the IMF’s previous forecast in January, according to its latest World Economic Outlook. As a result, unemployment may be driven towards its highest level in over a decade. The IMF singled out the UK as one of the countries set to suffer a “large negative effect” from the energy crisis, as it lowered its UK growth forecast for this year and next. The forecast for 2027 was also trimmed by 0.2% to 1.3%. The unemployment rate in the UK will reach 5.6% this year, the IMF predicted, well above the most recent reading of 5.2% in the November-to-January period, and a sharp increase on the fund’s previous predictions. This would put joblessness at the highest rate since 2015.
IMF chief economist Pierre-Oliver Gourinchas said the “gas-intensive” nature of the UK energy mix, given the fossil fuel’s importance for heating homes and determining electricity prices, as well as weak growth data in the second half of 2025 were the two reasons for the steep GDP growth downgrade. UK output grew by just 0.1% in the third and fourth quarters of 2025.
The UK’s predicted growth rate for this year is similar to the expansions predicted for Germany and France, but well below the 2.3% growth forecast for the US. The IMF downgrade follows a similar verdict from The Organisation for Economic Co-operation and Development last month, which slashed its growth outlook for the UK by more than any other G20 country.
Inflation in the UK is expected to pick up temporarily towards 4% before returning to the Bank of England’s 2% target by the end of 2027 as the effects of higher energy prices fade and the job market weakens, the IMF said. The fund’s full-year 2026 forecast for inflation was raised to 3.2%, well above its October prediction of 2.5% consumer price growth, followed by inflation of 2.4% in 2027.
Despite investors betting that the Bank of England is set to raise rates at least once this year, the IMF expects UK monetary policy to be kept on hold in 2026. The Bank of England next announces its interest rate decision on April 30th. Despite the gloomy projections, the UK economy expanded by 0.5% in February, above forecasts of 0.1% by economists in a Reuters poll and following upwardly revised growth of 0.1% in January. The GDP reading was led by strong services growth and marked the fastest month-on-month pace in more than two years. Services and production both grew by 0.5% in February, while construction grew 1%.
Commodity markets
In the commodity markets, Brent crude futures traded around $96 per barrel on Friday, remaining well below their 2026 peak as US President Donald Trump announced a ceasefire between Israel and Lebanon and reiterated that the Iran war “should” end soon.
Trump added that Israeli Prime Minister Benjamin Netanyahu and Lebanese President Joseph Aoun would be invited to the White House for what he described as the first meaningful talks between the two countries since 1983. The US State Department said that both sides aimed to create conditions for lasting peace, including mutual recognition of sovereignty. The department said the effort included improved border security and reaffirmed Israel’s right to self-defence. It also noted shared concerns over non-state armed groups, undermining Lebanon’s sovereignty. President Trump said he expects Lebanon to “take care of Hezbollah”, the Iran-backed militant group.
The developments raised hopes of a broader resolution to the Middle East conflict. Oil prices drifted lower towards the end of the week on expectations that the US and Iran could extend their ceasefire by two weeks and potentially resume talks to end the conflict. However, the physical market is becoming tighter every day that passes without a restart of oil flows through the Strait of Hormuz. Even accounting for pipeline rerouting and limited tanker movements, ING Group estimates that roughly 13 million barrels per day of supply has been disrupted, a figure that could rise further under a US blockade.
Gold traded around $4,790 an ounce on Friday and is on track for a fourth straight weekly gain, as hopes for a US-Iran peace deal eased fears of higher inflation and elevated interest rates.
Equity markets
US equity futures rose on Friday, as President Trump signalled optimism over a potential agreement to end the conflict with Iran, saying Tehran had accepted terms it had long resisted. In Thursday’s regular trading session, the Dow Jones Industrial Average rose 0.24%, the S&P 500 gained 0.26%, whilst the Nasdaq Composite advanced 0.36%.
President Trump warned this week that he could rip up his trade deal with Britain, as tensions rise between the US and UK over the Iran war and its economic fallout. The US President said the trade deal agreed with UK Prime Minister Sir Keir Starmer in May 2025 could be changed, as he continued to fulminate against a lack of support in the conflict with Iran. The trade deal, which provided relief for UK carmakers and to the steel and aluminium sectors, has been hailed by Starmer as one of his biggest economic achievements since becoming Prime Minister in 2024. Starmer responded by saying he would “not get dragged into this war, it is not our war”, despite the pressure applied to him by President Trump. UK Chancellor Rachel Reeves also renewed her criticism of the war in Iran, saying it was having an “immense” impact on economies around the world and that it had been a mistake to end diplomatic negotiations.
Elsewhere, new applications for US unemployment benefits fell more than expected last week, suggesting labour market conditions remained stable, although employers remain cautious about increasing headcount as the war with Iran casts a shadow over the economy. Initial claims for state unemployment benefits dropped by 11,000 to a seasonally adjusted 207,000 for the week ended 11th April, the Labor Department said on Thursday. Economists polled by Reuters had forecast 215,000 claims for the latest week. A surge in oil prices and the accompanying rise in inflation pressures because of the conflict in the Middle East has pushed consumer sentiment to record lows, and economists said households could scale back spending with ripple effects on the labour market.
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