UK markets pulled back slightly this week, with the FTSE 100 Index falling by 0.35% to trade at 10,400 points at the time of writing.
UK house prices fell more than expected in May, according to new data from lender Nationwide, as higher mortgage rates driven by the Iran war weighed on the housing market. Average selling prices fell to £278,024, a decline of 0.6% from the previous month after taking into account seasonal effects, Monday’s data showed. Annual house price growth slowed to 1.7% in May from 3% in April.
This is the first month-on-month decline in the Nationwide index this year and a larger fall than the consensus forecast of 0.2%. The figures showed how the rise in mortgage rates since the start of the war have begun to hurt the housing market. The average two-year fixed-rate mortgage was 5.68% on Monday, up from 4.83% at the start of March, according to finance website Moneyfacts.
The S&P Global UK Construction PMI fell to 38.2 in May 2026 from 39.7 in April, missing market expectations of 40.1 and signalling the sharpest contraction in construction activity since May 2020. Housing remained the weakest-performing segment, while commercial and civil engineering also declined amid client caution linked to inflation and geopolitical tensions. New orders fell at the fastest pace in six years as project delays, deferred investment decisions and budget cuts weighed on demand. Consequently, employment and purchasing activity continued to decline. Input cost inflation accelerated to its highest level since June 2022, driven by higher fuel and transport costs. Business confidence remained positive but eased to one of its weakest levels since late 2022 amid concerns over inflation, borrowing costs and the economic outlook.
Elsewhere, Andy Burnham has been in discussions with leading economist and Chair of the Northern Powerhouse Partnership, Jim O’Neill, about how he might boost infrastructure spending without breaking Labour’s fiscal rules and spooking the markets, as the Greater Manchester mayor plots his move on Downing Street. O’Neill has proposed that an independent body should assess new rail, road and energy projects to give the markets confidence that extra borrowing would only be used to back projects with high positive economic multipliers. Bond markets are watching Burnham closely for any sign that he will weaken fiscal discipline if he succeeds in winning the Makerfield by-election on June 18th and then topples Sir Keir Starmer as Prime Minister.
Commodity markets
In the commodity markets, Brent crude futures traded around $94 per barrel on Friday and are set for a weekly rise, after optimism over last week’s agreement of an extended US/Iran ceasefire faded. However, oil prices began falling again towards the end of the week on a report that US President Donald Trump is reluctant to resume full-scale war with Iran, despite recent clashes. Trump told his aides that the weekslong ceasefire with Iran is holding despite sporadic clashes, US officials told The Wall Street Journal. Although he said he would consider ending the truce if Iran kills American troops, the officials said.
The ceasefire appeared on the verge of collapsing earlier this week after Iranian state media said Tehran had cut off talks with the US due to Israel’s military campaign in Lebanon. Iran backs Hezbollah militants in Lebanon who have fired missiles at Israel. Israel and Lebanon agreed to implement a ceasefire on Wednesday, which could help advance talks between the US and Iran. However, the Hezbollah militia rejected the new ceasefire between Israel and the Lebanese government on Thursday. Hezbollah operates independently from the government in Beirut.
President Trump is facing growing opposition to the war in the Republican-led Congress. The House of Representatives passed a resolution on Wednesday that called on Trump to withdraw US forces or seek congressional approval to continue the conflict. The resolution still has to pass the Senate and would almost certainly be vetoed by Trump.
Iranian oil exports have fallen to their lowest level in six years mainly due to the US naval blockade, according to shipping data, although weak demand in China has depressed prices for oil.
Gold prices traded around $4,470 an ounce on Friday and are set for a weekly fall, as tensions in the Middle East dampened hopes for a US-Iran peace deal amid rising inflation and interest rate-hike fears.
Equity markets
US equity futures were mixed on Friday as investors awaited the release of the May employment report for a fresh insight into labour market conditions and the likely path of Federal Reserve policy. In Thursday’s regular trading session, the Dow Jones Industrial Average rose 1.73% to close at a record high, the S&P 500 gained 0.41%, whilst the Nasdaq Composite fell 0.09%. A string of labour market indicators released this week pointed to continued resilience in the US economy, reinforcing expectations that the Federal Reserve could raise interest rates before year-end as policymakers contend with inflationary pressures driven by higher energy costs linked to the Middle East Conflict.
The US has announced plans to impose tariffs of at least 10% on dozens of countries following a probe into forced labour practices, in the first significant effort by the White House to resurrect levies since its defeat at the US Supreme Court this year. The Office of the US Trade Representative said it intended to impose tariffs on 60 countries for not doing enough to prevent the import of goods using forced labour, a failing that it claimed left US workers competing on an “unlevel playing field”. China, the EU, India, Japan and the UK are among the major economies targeted by the proposal, which would set tariffs of between 10% and 12.5%. President Donald Trump’s administration vowed to resume its trade war after America’s top court in April ruled that most of the tariffs announced on “liberation day” last year were illegal. The proposal from the US Trade Representative relies on Section 301 of the Trade Act of 1974, which allows the White House to open investigations into the practices of trading partners.
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