London's FTSE 100 index declined 0.59% to 10,414.79 by 08:38 BST on Thursday, pressured by a fresh surge in oil prices and profit warnings from major retailers Sainsbury and WH Smith. Brent crude rose 1.2% to $103.34 a barrel, marking its first sustained move above $100 in over two weeks, as stalled U.S.-Iran talks and ongoing disruptions to shipping through the Strait of Hormuz kept energy markets on edge.
Inflation and Consumer Sentiment Weigh on Markets
March UK inflation accelerated to 3.3%, while consumer optimism hit a record low, data showed. The Bank of England faces its next policy meeting next week amid what AJ Bell's Danni Hewson called the 'spectre of stagflation.' The combination of rising prices and weakening confidence is putting additional strain on domestic stocks, with the FTSE 100 underperforming the Euro STOXX 50, which fell a more modest 0.42%.
Sainsbury and WH Smith Warn on Profits
Sainsbury flagged that uncertainty surrounding the Iran conflict could drag its fiscal 2026/27 operating profit—its preferred metric excluding certain one-off items—to between 975 million and 1.075 billion pounds. This cautious outlook echoes a similar warning from Tesco last week. Meanwhile, WH Smith slashed its full-year profit forecast to 90 million-105 million pounds and suspended its dividend, citing higher jet fuel costs and weaker passenger numbers at its travel outlets.
ASOS took a different tack, seeking refunds for 7 million pounds in U.S. tariffs paid in the first half and reaffirming its full-year outlook. But the broader message from UK consumer-facing companies was consistent: costs are rising, visibility is poor, and management teams are growing more cautious.
Oil Drives Market Divergence
Energy stocks benefited from the oil rally, with BP and Shell gaining ground, while airline stocks including IAG, easyJet, and Wizz Air tumbled as investors priced in higher fuel bills. Miners such as Fresnillo, Rio Tinto, and Glencore also advanced on firmer metal prices. 'The CPI figures confirm that the supply chain and energy pressures are beginning to bite,' said Nick Saunders at Webull UK.
U.S. markets hit fresh record highs overnight on earnings optimism, but European traders remained cautious ahead of UK flash PMI surveys due later Thursday. These early monthly snapshots of business activity will provide a fresh read on how much of the energy shock is feeding into economic growth.
Fiscal Data Offers Little Comfort
Official data showed Britain's budget deficit narrowed to 132.0 billion pounds in fiscal 2025/26, slightly below the Office for Budget Responsibility's forecast. However, March borrowing exceeded expectations, and debt-interest spending remained elevated, doing little to steady market sentiment.
'Markets look very on edge here,' said Saxo's Charu Chanana. Raymond James chief investment officer Larry Adam warned that 'sustained high energy prices would materially increase risks' for company guidance, a caution that fits the early tone in London.
The next move remains hostage to events beyond London. Any real easing in the Gulf or improvement in Hormuz shipping could relieve pressure on travel and retail shares, while a longer disruption would keep inflation, consumer spending, and company outlooks under strain into the second quarter.
