UK markets were little changed this week, with the FTSE 100 Index falling by 0.2% to trade at 10,460 points at the time of writing.
UK ministers risk creating a lost generation unless employers are given more incentives to take on young people, and public services including schools and the welfare systems are reformed, according to an official review. Most of the almost 1 million young people not in education, employment or training have never had a job as they drift further from the labour market, according to former cabinet minister Alan Milburn who led a government enquiry into youth unemployment.
Rising mental ill health and the decline of Saturday jobs mean that those aged between 16 and 24 are less ready for work than in the past, Milburn’s report said. The report was commissioned by Prime Minister Sir Keir Starmer to find ways to reverse a rise in numbers, which now stand at 957,000. It warned that entry-level roles have fallen sharply, and young people are finding it harder to climb on the jobs ladder, with apprenticeship starts among young people down 35% over the past decade.
Milburn suggested that the government reconsider its vow for a single minimum wage for adults, after ministers watered down their pledge to raise the rate for workers aged between 18 and 20. However, his report said that this is not the primary reason for higher levels of youth unemployment.
Despite signs of a fall in youth unemployment over the past year, current trends mean the figure will rise to 1.25 million, or one in six young people, in the next five years.
The British Pound fell over 1% against the dollar in May to around $1.34. The decline came amid a mix of rising political uncertainty following Prime Minister Keir Starmer’s Labour Party defeat in local elections and on-going US-Iran negotiations to end the three-month war, which has contributed to global inflation pressures.
On the monetary policy front, investors have dialled down expectations for further Bank of England rate hikes this year as oil prices eased from four-year highs and recent UK economic data has pointed to a cooling labour market, softer than expected inflation and signs of moderating economic activity.
Commodity markets
In the commodity markets, Brent crude futures traded around $91 per barrel on Friday and are on track for their steepest weekly decline since early April, following reports that the US and Iran have agreed to extend a ceasefire, though it has yet to be finalised. The US and Iran reached an agreement on Thursday to extend a ceasefire and lift restrictions on shipping through the Strait of Hormuz, although US President, Donald Trump has yet to approve it and Iranian state media said it has not been finalised.
Oil prices have been volatile this week on conflicting signals over a possible end to the three-month US-Israeli war on Iran and the potential reopening of the Strait of Hormuz. Traffic through the strait remains a small fraction of the pre-war level. Analysts at ING said a reopening of the strait would offer some immediate relief to the oil market, but a recovery is still uncertain.
Upstream oil production has fallen significantly since the war, with producers shutting in production to manage storage constraints. The recovery in upstream production will be gradual rather than immediate. Refineries in the region will need to ramp up output, which will take time, given that some of this infrastructure was targeted in attacks earlier in the conflict.
Gold prices traded around $4,535 an ounce on Friday, recovering after a volatile week as reports of a preliminary agreement between the US and Iran eased concerns over inflation and interest rates.
Equity markets
US equity futures were mixed on Friday as investors looked for official confirmation regarding ongoing negotiations between the US and Iran.
In Thursday’s regular trading session, the Dow Jones Industrial Average rose 0.05%, the S&P 500 gained 0.58%, whilst the Nasdaq Composite advanced 0.91%. US inflation increased at its fastest pace in three years in April, driven by higher energy prices amid the war with Iran, and cementing economists’ views that the Federal Reserve could hold interest rates unchanged well into next year.
The personal consumption expenditures (PCE) price index rose by 3.8% in the 12 months through April, the largest rise since May 2023, the Commerce Department’s Bureau of Economic Analysis said. PCE inflation advanced by an unrevised 3.5% in March. The PCE price index rose 0.4% month-on-month in April after shooting up 0.7% in March. Surging price pressures are eroding household income and could restrain consumer spending and economic growth this year.
Income at the disposal of households after adjusting for inflation dropped for a third straight month in April, with the saving rate hitting a four-year low, other data from the Commerce Department showed on Thursday. Given the soaring cost of living, US consumers are growing frustrated with President Trump’s handling of the economy. A Reuters/Ipsos survey last week showed Trump’s presidential approval rating fell to its lowest level since he returned to the White House in early 2025, dented by a drop in support among Republicans.
President Trump won the 2024 presidential election in a large part because of his promise to lower inflation. The rising cost of petrol and other items could undermine the Republican Party’s prospects of maintaining control of Congress in the midterm elections in November. The national average US petrol price increased 12.3% in April, data from the US Energy Information Administration showed, having risen more than 50% since the war started in late February. US consumers are also paying higher prices for other goods and services.
Inflation was already elevated before the war, largely because of President Trump’s sweeping import duties, and the pass-through from tariffs continues. Economists expect that consumers will want to start rebuilding their savings, especially in the face of uncertainty brought by the war. When adjusted for inflation, consumer spending rose by 0.1% in April after increasing 0.3% in March.
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