UK markets were little changed this week, with the FTSE 100 Index trading at 8,830 points at the time of writing.
UK inflation remained well above the Bank of England’s official 2% target at 3.4% in May, an indication that persistent price pressures have yet to recede. The figure from the Office for National Statistics matched forecasts in a Reuters poll of analysts and comes as the outlook for inflation is further complicated by the intensifying conflict in the Middle East, which risks pushing oil prices higher.
The Bank of England held interest rates at 4.25% at its June meeting, but signalled a possible cut as soon as August after recent data showed a weakening jobs market. The six-to-three vote by the Monetary Policy Committee followed a 0.25% cut in May amid concerns over the impact of US President Donald Trump’s aggressive tariff policy.
UK house prices declined at their fastest monthly pace in nearly four years in April, as demand fell after the end of a temporary stamp duty holiday. Property prices fell 2.8% between March and April, the steepest month-on-month decline since July 2021, according to data from the Land Registry published on Wednesday.
The fall brought the average house price down to £265,000 and pushed annual growth to 3.5%, from 7% the previous month, the first slowdown since December 2023. Stamp duty thresholds reverted to pre-2022 levels on 1st April, increasing costs for many property buyers. For example, first-time buyers have started paying the levy for properties worth £300,000 or more, a lower threshold than the previous £425,000.
Elsewhere, British retail sales fell by 2.7% in May, a much steeper drop than expected and the first this year, as consumers cut back on purchases of food and household goods. Friday’s figure from the Office for National Statistics was below the 0.5% decline forecast by economists polled by Reuters.
Separate figures published by the Office for National Statistics on Friday showed the UK government borrowed £17.7 billion in May, exceeding the £17.1 billion forecast by the Office for Budget Responsibility, the UK’s official fiscal watchdog, and up £700 million from the same month last year. Chancellor Rachel Reeves is under pressure to meet her fiscal rule to balance day to day spending with revenues by 2029/30, while improving public services and spurring growth.
Commodity markets
In the commodity markets, Brent crude futures traded around $77 per barrel on Friday and are set for a weekly rise, as Donald Trump called for Iran’s unconditional surrender. Trump confirmed on Wednesday that he was considering a military strike against Iran’s nuclear facilities, although he has delayed a decision on US involvement in the Iran-Israel conflict.
Oil prices jumped almost 3% on Thursday as Israel bombed nuclear targets in Iran, and Iran fired missiles and drones at Israel after hitting an Israeli hospital overnight. The week-old war between Israel and Iran has shown no sign of either side backing down. Oil prices declined slightly towards the end of the week following comments from the White House stating that Trump will decide whether the US will get involved in the Israel/Iran conflict in the next two weeks.
Iran is the third-largest producer among members of the Organisation of the Petroleum Exporting Countries, extracting about 3.3 million barrels per day of crude oil. About 18 to 21 million barrels per day of oil and oil products move through the strait of Hormuz along Iran’s southern coast, and there is widespread concern the fighting could disrupt trade flows in a blow to supplies. Oil prices have gained about 10% since Israel launched its campaign against Iran last Friday.
Gold prices traded around $3,350 an ounce on Friday and are on track for a weekly decline, as an overall stronger dollar and the prospect of fewer US interest rate cuts offset support from rising geopolitical risks in the Middle East.
Equity markets
US equity futures rose on Friday after Thursday’s market closure for the Juneteenth holiday. The Federal Reserve cut its forecasts for economic growth this week, as Donald Trump’s tariffs on America’s trading partners bring risks of higher inflation. The Federal Open Market Committee held rates steady for the fourth meeting in a row at a range of 4.25-4.5% on Wednesday, despite the US president calling for chair Jerome Powell to slash borrowing costs by at least 2%. Just hours before the decision, Trump called the Fed chair “stupid” and asked whether he could appoint himself to the central bank.
Projections released on Wednesday showed the US economy would grow by 1.4% in 2025, substantially weaker than last year, with unemployment rising from its current level of 4.2% to 4.5% and personal consumption expenditures inflation increasing from an April figure of 2.1% to 3%. In March, the median expectation among US rate-setters was for the economy to expand by 1.7%, unemployment to rise to 4.4% and personal consumption expenditures inflation to hit 2.7%.
The Federal Reserve’s “dot plot” of monetary policy estimates still showed a median forecast that the central bank would make two quarter-point rate cuts this year, but officials are becoming more divided, with an increasing number now ruling out any reduction in borrowing costs for the remainder of 2025. There were still 10 members expecting two or more 0.25% cuts this year. However, seven now forecast no rate cuts and two are expecting one cut.
Recent inflation data has been tame, but many economists expect price growth to increase in the coming months as companies pass on the costs of tariffs. Business surveys have also pointed to high levels of uncertainty among company executives over demand across the economy and their own costs.
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