UK's FTSE 100 closes up as data points to softer inflation pressures from US-Iran war
By Niket Nishant and Tharuniyaa Lakshmi
FTSE 100 Performance and Market Reactions
June 5 (Reuters) - UK's FTSE 100 closed up on Friday, bucking a risk-off mood in other global markets, as investors took comfort from data suggesting that inflationary pressures from the Middle East war may be less severe than feared.
Index Movements and Weekly Trends
The blue-chip FTSE 100 index closed up 0.07%, while the mid-cap FTSE 250 fell 1%. Both indexes ended the week lower, with the mid-cap index snapping a two-week winning streak.
Inflation Expectations and Business Sentiment
- British businesses expect to increase prices less quickly in the year ahead than they did in April as some of the initial energy price shock caused by the Iran war fades, a survey by the Bank of England showed.
- The survey of more than 2,000 British companies showed 57% of firms expected to increase prices in response to the energy price shock, down 7 percentage points from April.
Expert Commentary and Central Bank Response
- "The latest evidence appears to support our view that the weakness of the labour market will prevent the second-round inflation effects that the Bank of England fears," said Paul Dales, chief UK economist at Capital Economics. "If so, the Bank of England might stand out from the central bank crowd by not raising interest rates."
- An early resolution to the conflict and reopening of the Strait of Hormuz, a key shipping route for global oil shipments, would be essential to prevent further escalation of the economic impact.
- Iran has made a ceasefire between Israel and Hezbollah a condition for any peace deal with Washington to end the war, now in its fourth month.
Impact on Housing and Interest Rates
- British house prices unexpectedly fell 0.1% in May, according to data from mortgage lender Halifax on Friday, another sign of cooling in the market as higher borrowing costs and uncertainty caused by the Iran war weigh on demand.
- Traders expect the BoE to keep borrowing costs unchanged at 3.75% this month, but see one or possibly two quarter-point hikes in rates later this year.
Sector Performance and Notable Movers
- Investors are also monitoring UK politics. Labour mayor Andy Burnham signalled this week that if he wins a local election later this month he would run in any leadership race against Prime Minister Keir Starmer.
- Pharma stocks jumped 2.1% while personal care stocks gained 2%. Precious metal miners, on the other hand, fell 6%.
- Evoke rose 15% after the British bookmaker agreed to be acquired by Greek lottery and gaming firm Bally's Intralot on Friday in an all-share deal valuing it at about £243 million ($326 million).
- Raspberry Pi was up 27% to the top of the mid-cap index after the single-board computing firm upgraded its full-year profit outlook, sending shares to an all-time high.
(Reporting by Niket Nishant and Tharuniyaa Lakshmi in Bengaluru; Editing by Shailesh Kuber)
