UK markets advanced this week, with the FTSE 100 Index rising 0.75% to trade at 10,225 points at the time of writing. UK shop price inflation rose in January to the highest since early 2024, as higher energy costs and taxes spread through the economy, according to industry data that contrasts with expectations that price growth has already peaked.
The British Retail Consortium said that shop prices rose at an annual rate of 1.5% in January, up from 0.7% last month, and the highest since February 2024, when it hit 2.5%. Price growth in meat, fish and fruit was particularly strong, reflecting weak supply and stronger demand.
The Bank of England expects inflation to have peaked at 3.8% last year and to decline to around 3% in the first quarter of 2026, slowing closer to its target of 2% from April. However, the British Retail Consortium’s price index, which provides an early indication of pricing pressures ahead of official data on February 18th, showed that food inflation accelerated to 3.9% in January, from 3.3% last month.
UK Prime Minister Sir Keir Starmer met with Chinese leader Xi Jinping in Beijing this week where they agreed to launch a “feasibility study” on possible negotiations for a bilateral services pact, alongside a host of other agreements including visa-free travel, raising the hopes that British businesses could grow their footprint in China.
In contrast to its £53 billion trade deficit in goods with China in the year to the end of last June, the UK had a £10 billion surplus in services, and it hopes the City’s financial and professional services firms could play a greater role in China in the coming years. Starmer, who was met in Beijing this week by China’s finance minister Lan Fo’an, was accompanied by a delegation that reflected those ambitions, including the likes of Aberdeen, Bridgepoint Group, Barclays and Freshfields, as well as representatives from manufacturing, science and creative industries.
The services partnership would help British companies in areas where the UK is strong, in professional services as well as education and healthcare, and will go some way to rebalancing the trading relationship with China. US President Donald Trump late on Thursday warned Starmer against pursuing closer business ties with China, which he called “very dangerous”.
Commodity markets
In the commodity markets, Brent crude futures traded around $69 per barrel on Friday and are set for a weekly rise, as President Donald Trump weighed military strikes on OPEC member Iran. Multiple sources told Reuters that Trump is weighing targeted strikes on Iranian security forces and leaders to inspire anti-government protesters. The president wants to create conditions for regime change, two sources told Reuters.
The Islamic Republic launched a security crackdown earlier this month to quell protests, leaving thousands dead. The oil market is wondering whether the unrest in Iran and possible military intervention by the US could lead to a disruption of crude supplies in the region. President Trump has deployed the Abraham Lincoln Carrier Strike Group to the Middle East, warning Iran on Wednesday that time is running out to make a deal on its nuclear program. The US president threatened Tehran with larger strikes than the attack the US launched last June, which targeted Iran’s nuclear facilities. However, there have been recent signs that President Trump may engage in dialogue with Iran over its nuclear programme, reducing concern over potential supply disruptions from a US attack.
Gold prices traded around $5,100 an ounce on Friday and are set to end the week higher, despite heavy selling pressure towards the end of the week on profit taking, but remaining on track for a monthly gain of over 15%.
Equity markets
US equity futures fell on Friday as investors reassessed artificial intelligence related valuations amid a heavy slate of earnings this week. In Thursday’s regular trading session, the Dow Jones Industrial Average rose 0.11%, the S&P 500 lost 0.13%, whilst the Nasdaq Composite declined 0.72%. The Federal Reserve kept interest rates on hold at a range of 3.5% to 3.75% at its meeting on Wednesday, following three straight 0.25% reductions, matching Wall Street’s expectations.
Federal Reserve Chair Jerome Powell said that the US central bank was in no rush to cut rates, despite President Trump’s relentless campaign to drastically lower borrowing costs. Powell said after the meeting that with the economy growing at a robust rate, and the jobs market steadying in recent months, rates did not appear to be in “significantly restrictive” territory. Official statistics released last week showed annualised GDP growth of 4.4% in the third quarter of 2025.
The Atlanta Fed has said that could jump as high as 5.4% in the fourth quarter. Powell’s comments represent one of the clearest signs yet that policymakers plan to keep rates on hold in the coming months despite Trump insisting that they should lower borrowing costs to boost growth. Investors continue to expect the next Federal Reserve rate cut this summer at the earliest.
Large US companies have announced plans this week to lay off tens of thousands of workers, signalling further workforce trimming after years of strong hiring. Amazon, UPS, Dow, Nike, Home Depot and others said they will cut more than 52,000 jobs combined, citing ongoing economic uncertainty and growing pressure to invest in artificial intelligence. While the lay-offs are concentrated among a small group of large firms, they have heightened concerns among Federal Reserve policymakers and private economists that the previously robust US job market is weakening.
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