UK Stocks Edge Higher as Q1 Growth Data Lifts FTSE 100 Confidence

Q: With the Iran war over, will the Bank of England now cut rates to rescue the UK’s faltering economy?

Probably not immediately. The end of the Iran conflict has reduced the case for further Bank of England tightening, but it does not guarantee a near-term rate cut. The key change is energy. With the US-Iran peace deal helping reopen the Strait of Hormuz, oil has fallen below $80 a barrel, removing the Bank’s worst-case inflation scenario. That matters because the conflict had pushed up fuel, gas and broader business costs, making policymakers wary of cutting too soon. Governor Andrew Bailey has called the recent fall in oil prices encouraging, though he has also warned that energy prices are still higher than before the war and that some inflation pressure is already “in the pipeline.” The domestic picture argues for easier policy later on, not necessarily now. UK GDP grew 0.6% in the first quarter, but the economy then shrank 0.1% in April. Wage growth has slowed, the labour market is loosening and unemployment has been edging higher. Inflation, at 2.8% in May, was softer than expected, but the Bank still expects it to rise again later this year and remain above the 2% target for a time. That is why the Bank held rates at 3.75% again in June, by 7-2. Markets have backed away from expecting aggressive hikes, but they are not pricing a rapid rescue-cutting cycle either. The most plausible path is a prolonged hold, with a cut becoming more likely over the next 12 months if weaker growth, softer wages and lower energy prices persist.

3 articles · Updated · Kalkine Media · Jun 30

UK equities opened with a cautious positive tone, with futures indicating a slightly firmer start after the previous session’s decline.
Q1 growth data showing steady economic expansion improved confidence in the domestic outlook, easing fears of a sharper slowdown and supporting sentiment toward listed companies.
BT Group, BAE Systems and Entain were among the main stocks in focus, reflecting investor interest in communications, defence and consumer-facing sectors.
Rate expectations, inflation pressures and global factors including energy prices, currency moves and geopolitical risks still threaten to cap gains.
The session leaves the FTSE 100 balancing signs of UK economic resilience against uncertainty over monetary policy and overseas developments.