London markets were closed on Monday for the Spring Bank Holiday, leaving investors to wait until Tuesday to react to Friday's gains and a flurry of UK economic data that has shifted expectations for the Bank of England's next move.
The FTSE 100 ended the pre-holiday session at 10,466.26, adding 22.79 points or 0.22%, according to London Stock Exchange data. The blue-chip index snapped a four-week losing streak, buoyed by weaker-than-expected UK economic data that has tempered fears of an imminent rate hike by the Bank of England.
"The backdrop was much less conducive to a long-lasting bout of inflation than it was in 2022," said Ruth Gregory, deputy chief UK economist at Capital Economics, in a note cited by Reuters. The FTSE 250 also gained, rising 219.55 points or 0.96% to close at 23,167.47.
UK inflation continued to moderate, with the Consumer Price Index (CPI) falling to 2.8% in April from 3.3% in March, according to the Office for National Statistics. Wage growth, excluding bonuses, eased to 3.4% in the first quarter, while job vacancies dropped to 705,000, the lowest level since early 2021. The Bank of England's Bank Rate remains at 3.75%, with the next policy decision scheduled for June 18.
Retail sales also fell, dropping 1.3% in April compared to March, as the ONS reported a pullback in fuel sales after earlier stockpiling by drivers. "Pressure on household finances was weighing heavily on consumer confidence," said Samuel Edwards, head of client portfolio management at Ebury.
A closely watched business survey added to the cautious tone. The S&P Global Flash UK PMI dropped to 48.5 in May, down sharply from 52.6 in April. A reading below 50 signals contraction. Chris Williamson, chief business economist at S&P Global Market Intelligence, described the decline as a "perfect storm" caused by political uncertainty and fallout from the Middle East.
European markets showed some resilience on Monday, with the STOXX 600 edging higher and Brent crude slipping on hopes of a potential Iran-U.S. peace deal. However, analysts cautioned that any rally could be short-lived. "Even with a deal, it could be little more than an extended ceasefire," said Kyle Rodda, senior market analyst at Capital.com, noting that oil, inflation, and rate trades remain volatile and could snap back quickly.
London energy stocks will be in focus when trading resumes. Shell and BP are navigating oil price movements and new UK policy after finance minister Rachel Reeves announced she will close a tax loophole used by some multinational oil and gas firms. "We are putting an end to that practice," Reeves said in a statement cited by Reuters.
In mid-cap deals, Bodycote saw its shares jump nearly 19% after Apollo made a conditional all-cash bid worth approximately 1.52 billion pounds, or 885 pence per share. Bodycote noted that a formal offer may not ultimately be made.
UK data releases are thin this week, with only ONS figures on household costs and NEETs scheduled for Thursday. Traders are focused on how falling oil prices, weaker economic activity, and cooling inflation may help keep rate hike worries in check when London markets reopen on Tuesday and align with Monday's global market moves.
