UK markets posted modest gains this week, with the FTSE 100 Index up 0.7%, trading at 8,769 points at the time of writing.
UK food inflation rose for the fourth consecutive month, reaching an annual rate of 2.8% in May, up from 2.6% in April. The increase was mainly driven by fresh food prices, according to the British Retail Consortium (BRC). Retailers are facing growing cost pressures, absorbing an additional £5 billion due to higher employer National Insurance contributions and an increase in the minimum wage, both of which came into effect in April.
Globally, food prices rose at an annual rate of 7.6% in April, according to the UN Food and Agriculture Organization. Prices for vegetable oils and dairy products were particularly high, up more than 20% year-on-year. However, the BRC reported that prices of non-food items remained in deflation, falling 1.5% in May, which helped to keep overall shop price inflation in negative territory at -0.1%.
The International Monetary Fund (IMF) slightly increased its growth forecast for the UK in 2025 to 1.2%, following a stronger than expected first quarter. The IMF’s update also offers the UK government some political room to consider revising its fiscal rules.
However, the IMF warned that fiscal flexibility remains limited, meaning additional tax increases or spending cuts may be required if unexpected economic shocks occur. The fund recommended streamlining fiscal assessments to once per year, at the time of the Budget, to support policy stability.
The UK is set to hold talks with the US next week aimed at accelerating the implementation of a bilateral trade agreement. Discussions will centre on the timeline for US tariff reductions on UK car and steel exports. In return, the UK has agreed to provide greater market access to US products, including beef, ethanol, and certain industrial goods.
Commodity markets
Brent crude oil traded around $63.50 per barrel on Friday and is set to end the week lower. Investors are weighing the potential for new sanctions on Russian crude alongside the possibility that OPEC+ could accelerate production increases in July. Adding to the complexity, a major US oil company has suspended its operations in Venezuela after its operating licence was revoked earlier this year.
In April, Venezuela cancelled oil shipments to the company, citing payment uncertainties linked to US sanctions. Before the suspension, the company was exporting around 290,000 barrels per day, more than a third of Venezuela’s total output.
Gold traded around $3,300 an ounce on Friday, set for a modest weekly decline as investor risk appetite improves.
Equity markets
US equity futures edged slightly lower on Friday morning as investors continued to digest earnings results from major technology companies.
Earlier in the week, US stocks had moved higher after signs of progress in trade discussions with the European Union, alongside news that proposed tariff increases would be delayed. Markets were further buoyed by a US federal court ruling that declared a recent tariff initiative illegal, citing misuse of emergency economic powers legislation. While the administration plans to appeal, the decision could lead to a less aggressive approach to trade policy in the near term, easing concerns about inflationary pressures.
The Conference Board’s Consumer Confidence Index rose by 12.3 points to 98 in May, the largest monthly gain in four years. The rise in confidence spanned across age groups, income levels and political affiliations, with the strongest gains recorded among Republican respondents.
However, not all economic data was positive. US GDP contracted by an annualised 0.2% in the first quarter – the first decline since 2022 – largely due to a sharp increase in imports driven by trade policy uncertainty. Consumer spending growth slowed slightly during the period.
Meanwhile, initial jobless claims rose by 14,000 to 240,000 for the week ending 24 May, the highest level in a month and above expectations. Continuing claims also increased to 1.92 million, suggesting potential softening in the US labour market amid ongoing economic uncertainty.
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