Brent crude has climbed back above 100 dollars a barrel after a fresh flare‑up between the US and Iran in the Strait of Hormuz, reversing the brief respite seen when peace hopes had tempered prices earlier in the week. The renewed hostilities have tightened supply fears and fed straight into inflation worries for energy‑importing economies such as the UK.
Higher oil prices threaten to keep fuel and household energy bills elevated just as inflation had been edging closer to the Bank of England’s 2 per cent target. Markets now fear the spike could slow the pace of any future rate cuts, prolonging the squeeze on consumers and businesses already grappling with higher living and operating costs.
Sterling has been relatively resilient, supported by expectations that the Bank of England will remain cautious on rate cuts and by some optimism that the UK can absorb the latest energy shock. Options markets suggest traders are not braced for extreme volatility immediately after the local elections, but political developments remain a key risk as the campaign unfolds.
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The pound’s performance is also being shaped by shifting sentiment towards the US, as investors weigh Donald Trump’s tariff threats against the European Union and his handling of the Iran conflict. Trump’s rhetoric on Iran and trade has helped drive oil higher and complicated the inflation outlook, while UK parties face questions over how they would support households and businesses if energy costs stay elevated.
UK government bond yields have risen since the outbreak of the US‑Iran conflict, reflecting expectations of stickier inflation and higher borrowing costs. The move, on top of the rise in yields after Labour came to power, has intensified concerns about the long‑term cost of servicing the UK’s debt pile.
London’s FTSE 100, meanwhile, has been buffeted by war‑driven swings in oil and shifting ceasefire expectations. Oil majors have at times supported the index as crude has climbed, but travel, banking and domestically focused stocks have come under pressure when war worries intensify.
