Key facts
- UK shares rallied on Friday, with the FTSE 100 and FTSE 250 indexes posting weekly gains.
- Hopes for a peace agreement between Iran and the U.S. led to a drop in crude oil prices.
- Public long-term inflation expectations in the UK reached a record high in May, driven by soaring energy prices.
- Britain's economy contracted by 0.1% in April, marking the first monthly decline since August 2025.
- The Bank of England's key interest rate is expected to remain at 3.75%, though nearly 40% of economists predict a future hike.
UK shares experienced a broad-based rally on Friday, with both the mid-cap FTSE 250 and blue-chip FTSE 100 indexes achieving weekly gains. This upward movement was fueled by growing optimism surrounding a potential peace agreement between Iran and the U.S., which subsequently led to a decrease in crude oil prices. The FTSE 100 closed 1.6% higher, reaching its highest level since May 27, while the FTSE 250 also saw a 1.6% increase, its best single-day performance in over five weeks.
Despite the positive market sentiment, separate data revealed that Britain's economy contracted by 0.1% in April, marking its first monthly decline since August 2025. Analysts from J.P. Morgan noted that this slowdown was anticipated due to the energy shock and predicted further weakness in consumer spending as rising inflation impacts real incomes.
Concurrently, the Bank of England's quarterly inflation attitudes survey indicated that the public's long-term inflation expectations surged to a record high in May. This increase is attributed to escalating energy prices, a consequence of the conflict involving the U.S. and Iran and subsequent disruptions to shipping lines. While economists largely expect the Bank of England to maintain its current interest rate of 3.75%, nearly 40% anticipate at least one rate hike later in the year.