Good morning and welcome back to the City AM liveblog. The FTSE 100 experienced a significant decline as oil prices surged sharply amid the ongoing war in Iran, creating turmoil in financial markets.
Spring Statement and Economic Forecasts
Yesterday, Chancellor Rachel Reeves delivered her Spring Statement, presenting new forecasts from the Office for Budget Responsibility. These forecasts reduced growth projections for 2026 but offered modest upgrades for the following years.
However, economists in the City quickly labeled these forecasts as outdated, citing the backdrop of the Middle East conflict. This situation threatens to disrupt inflation estimates and has already sent the FTSE 100 tumbling downward.
Energy Price Surge and Market Impact
The UK gas price soared to its highest level in three years on Tuesday, nearly doubling over two days to reach highs of 165p a therm. Although it later retreated slightly, it finished at 138p a therm, representing an increase of over one-fifth compared to Monday's price.
Simultaneously, oil prices briefly rose above $85 a barrel for the first time since July 2024, adding to the market frenzy. This spike has economists sounding alarms about potential inflation spikes.
Inflation Warnings and Economic Uncertainty
Raj Badiani, economics director at S&P Global Market Intelligence, highlighted the risks: "A prolonged conflict in the Middle East could trigger a steep rise in UK industrial and residential energy bills when the new energy price is announced on July 1, suggesting headline inflation could rise sharply in the second half of this year."
This uncertainty has put bond markets on high alert. The UK's 10-year gilt yield, a key indicator of the government's borrowing costs, rose approximately 20 basis points at its peak before settling around 10 basis points higher by the end of the day.
Market Developments and Future Outlook
We will continue to provide the latest updates as the situation unfolds. The combination of geopolitical tensions and energy market volatility poses significant challenges for the UK economy, with potential implications for inflation, consumer bills, and overall financial stability.
Stay tuned for further analysis and breaking news on this developing story.
