London's FTSE 100 index slipped 0.4% to close at 10,233.07 on Friday, extending its slide to a third consecutive weekly decline, as renewed clashes in the Gulf and political uncertainty following Labour's local election losses weighed on investor sentiment. The index finished the week down 1.4%, while the domestically oriented FTSE 250 edged 0.2% lower.
Geopolitical Tensions and Oil Prices
Fresh hostilities in the Strait of Hormuz disrupted hopes for a near-term ceasefire between the US and Iran, pushing Brent crude oil prices to $101.49 a barrel, up from $97.76 at Thursday's close. According to AJ Bell's investment director Russ Mould, the clashes have “extinguished some of the hope” for a diplomatic resolution, heightening risk aversion across markets.
Currency and Political Pressures
A stronger pound added further strain on the internationally exposed FTSE 100, as many of its constituents generate revenue overseas, making their profits less valuable when converted back to sterling. The pound climbed on Friday, compounding the index's weakness. Meanwhile, early results from local elections showed sharp losses for Prime Minister Keir Starmer's Labour Party, with Reform UK gaining over 1,000 council seats in England. Despite Starmer's pledge to remain in office, more than 20 Labour lawmakers have reportedly urged him to reconsider his future. The gilt market showed some relief, with 10-year yields slipping 7 basis points to 4.875%, though Premier Miton's Lloyd Harris warned that “fireworks are still to come.”
Corporate Earnings and Profit Warnings
British Airways parent IAG dropped 2.8% after warning that annual profits would fall short of expectations, citing a sharp increase in jet fuel costs—expected to rise by €2 billion in 2026 versus 2025 due to the ongoing conflict. The company has hedged 70% of its 2026 fuel needs, and CEO Luis Gallego assured there are “no issues with fuel availability” in core markets. The warning follows similar headwinds flagged by Air France-KLM and easyJet, according to Reuters. J.P. Morgan analyst Harry Gowers noted that while the conflict will challenge IAG's resilience, the group's free cash flow should hold up.
Testing firm Intertek slipped 2.7% after rejecting a revised £8.93 billion takeover bid from Swedish private equity firm EQT, dismissing it as too low and citing execution risks. Panmure Liberum's Joe Brent suggested another offer could emerge, either from EQT or another party, and noted that if Intertek opts for a breakup, the valuation could fall to £44 or below.
Economic Data and Housing Market
Fresh data from Halifax showed UK house prices dipped 0.1% in April, marking a second consecutive monthly decline. Year-on-year, prices rose just 0.4%, the weakest gain since December. Amanda Bryden, head of mortgages at Halifax, commented that “recent global developments have introduced a greater degree of uncertainty” into the housing market.
Outlook and Scenarios
Looking ahead, market direction could hinge on geopolitical developments. A lasting ceasefire could lower oil prices and ease inflation concerns, potentially lifting shares of airlines, housebuilders, and banks. Conversely, an escalation in fighting could drive fuel prices higher, raise borrowing costs, and renew stress on public finances, putting London stocks at risk as next week's trading begins. The FTSE 100 remains tethered to global headlines and currency moves, while the domestically focused FTSE 250 managed a 1.7% gain for the week, highlighting a split between international and home-focused stocks.
