𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Oil prices tumbled, shares surged, and the dollar fell following the announcement of the US-Iran ceasefire and the push to reopen the Strait of Hormuz.

That led to hope that the global energy crisis could be short-lived and UK consumers could avoid the worst of the feared fuel price inflation that has sent prices at the pumps soaring.

Oil fell 14 per cent to $93.93 a barrel after Iran agreed to open the Strait of Hormuz as part of a two-week ceasefire deal, after soaring well past $100 while the war raged.

Capital Economics said in a note to clients: “There’s still a lot of uncertainty: the pause [in the conflict] is contingent on Iran re-opening the Strait of Hormuz, but what form this takes (eg, whether it will levy tolls) is unclear.

“That, in turn, will affect how much further energy prices fall (if at all). And it remains to be seen whether this is a genuine step towards lasting peace. But, the announcement is the clearest sign yet that the end of the conflict, and of the associated economic disruptions, is in sight.”

Traders hailed another TACO (Trump Always Chickens Out) moment. Michael Brown, an analyst at financial services company Pepperstone, said: “Yes, President Trump kicked the can down the road once more so far as his ‘deadline’ for strikes on Iranian power plants and bridges was concerned, with this in fact being the 4th time that said deadline has been extended. This time does look different, though, with the President noting that the 2-week period is a ‘double-sided ceasefire’, during which the Strait of Hormuz will be reopened by the Iranians, a pivotal step in the normalisation of global commodity flows.”

Here’s how the latest developments have impacted across markets in the UK on Wednesday – but with always the possibility of rapid changes.

Fuel

Talk of fuel rationing should at least be calmed for now. Oil fell 14 per cent to $93 a barrel as the ceasefire deal was announced.

Jet fuel prices, which were around £65 before the strikes on Iran started, are now above £150. Airlines have warned that travel is going to be more expensive for some time as they put fares up.

Market analysts say there will be a squeeze on jet fuel even if there is a longer-term Iran deal.

The UK energy price cap is set at £1,641 until 30 June. The assumption was that it would leap upwards when it is reset, but there was hope today that it could instead fall.

In first-quarter results today, Shell reported that liquid natural gas and gas-to-liquid production fell to between 880,000 and 920,000 barrels of oil equivalent per day, down from 948,000 in the last three months of December.

But gas prices have fallen sharply, down 17 per cent, on hopes that the distribution of the liquid natural gas supply will ease. LNG is still priced a third higher than it was before the war.

Petrol prices are also expected to remain elevated, given the unpredictable nature of the fuel market.

Stock markets

Shares rallied, with the FTSE up 2.5 per cent, 26 points, at 10,606. The biggest gainers were WPP and Imperial Brands, global companies that have been hit by trade fears.

British Airways owner IAG was up 10 per cent, while jet engine maker Rolls-Royce was 11 per cent.

But BP and Shell fell 7 per cent since their profits are so highly reliant on the oil price. Investors in big oil could see their hopes for bumper profits from a prolonged conflict stymied.

Richard Hunter at Interactive Investor said: “The sense of relief was palpable across Asian markets overnight, where much of the region is dependent on energy imports. Japan’s Nikkei 225 added 5 per cent given its particular reliance on such imports, while indices across the board were higher as the relief rally took hold and investors re-entered the investment fray in their droves, based on some sort of return to normality.”

Inflation

Unfortunately, damage has already been done in this area. Because the price of oil has been higher for the past six weeks or so, that will feed through in energy bills, food and production and transport costs – and all inflation really is, is prices going up.

However, there will be some hope that matters are not as bad as they might have been had the conflict gone on another month – though of course this two-week ceasefire leaves the future far from certain in that regard too.

Already the Food and Drink Federation have warned that grocery inflation is likely to hit 9-10 per cent later this year and wider UK inflation is tipped to go close to 4 per cent in the second half of 2026, but the true amount won’t be known until firms see how much of the cost increases they can absorb, how much energy bills spike and – clearly an important point – just how low oil prices go again even if the ceasefire does hold.

Most experts do not expect a return to the mid-$60s barrel prices that we saw pre-conflict.

“One thing investors can see more clearly is the inflationary spike hurtling towards us, whether the Strait of Hormuz is reopened to global traffic in the coming days or not,” said AJ Bell’s head of financial analysis, Danni Hewson.

“That’s likely to dent already fragile consumer confidence, which will impact spending decisions in the coming months, especially on the ‘nice-to-haves’ people were just beginning to stick back in their shopping baskets.”

Interest rates and mortgages

With the Monetary Policy Committee set to vote on Bank of England interest rates at the end of the month, there’s no immediate alteration coming here. The smart money might be on another cautious approach resulting in an overall hold at 3.75 per cent, while the monetary leaders wait and see how the fallout filters through to the UK economy. That said, there remain pressures from said economy underperforming, as well as a rising unemployment rate.

However, rates moving higher should at least be off the cards right now, despite money markets having priced in four hikes in a year at one point recently and still two over the year as recently as Tuesday. That expectation has faded post-ceasefire, though, as evidenced by the two-year UK gilt yield falling almost 8 per cent overnight.

“In the UK, markets are still attaching some probability to another hike, although conviction has faded meaningfully in recent sessions,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown. “We still see rate hikes as unlikely, given lingering growth concerns, with a holding pattern more probable for now. Further moves in this direction, and perhaps an eventual return to expectations of rate cuts, would be supportive of both stock markets and gold.”

In mortgage terms, even if interest rates aren’t cut, swap rates (which mortgages are largely priced from) may come down from recent elevated levels to give hope of falling rates on some deals – but as one industry expert recently told The Independent, it may be several months before we see sub-4 per cent mortgages again.

Meanwhile, Halifax’s House Price Index showed that March was another month where average property prices fell, as swap rates rose and the best mortgage deals quickly disappeared from the market after the Middle East conflict started.

“This first month of data is a poor indicator of where the market will go next,” said Jonathan Hopper, CEO of Garrington Property Finders. “The reason for this distance is that the financial markets are moving far faster than the property market. As the past 24 hours show, extreme volatility is an almost daily occurrence on the financial markets.

“Nevertheless, the surge in the cost of fixed-rate mortgages over the past month has cooled buyer demand, as has the general sense of uncertainty caused by the war.

“As the spring surge in listings adds to an already abundant number of homes for sale, many sellers are being forced to trim asking prices or accept lower offers from buyers who increasingly hold all the cards.”