London's stock markets closed out May with a second consecutive monthly advance, though the path ahead appears fraught with risks as the UK economy confronts a critical week of data releases and ongoing geopolitical uncertainty. The FTSE 100 index edged down 0.16% on Friday to settle at 10,409.28, yet managed a modest 0.3% gain for the month. Meanwhile, the FTSE 250, a barometer for mid-sized domestic companies, rose 0.43% on the day and posted a robust 4.3% monthly increase, ending at 23,425.77.
The gains have been driven more by relief than by earnings momentum. A decline in oil prices over recent sessions helped ease some inflation concerns, while mid-cap stocks rebounded after weeks of anxiety over UK economic growth, political stability, and rising borrowing costs. The London Stock Exchange was closed for the Spring Bank Holiday on Monday, shortening the trading week and adding to the cautious tone.
Ocado Group emerged as a standout performer on Friday after Asda, the UK supermarket chain, selected the online grocery technology firm to upgrade its e-commerce platform. Asda executive chairman Allan Leighton said the partnership "will strengthen our online offer." Ocado CEO Tim Steiner described the deal as "the start of a long journey together." JPMorgan analyst Marcus Diebel estimated the agreement could boost Ocado's annual core earnings by approximately 20 million pounds starting in 2027, based on a profit metric that excludes certain financing and accounting items.
Oil prices were mixed after Reuters reported that the United States and Iran had reached a memorandum of understanding for a 60-day ceasefire extension, pending approval from U.S. President Donald Trump. The news weighed on crude, reducing support for London-listed energy stocks that had benefited earlier from the conflict. The ceasefire's fate remains uncertain, and any breakdown could send oil prices higher, reigniting inflation fears.
Bank of England Governor Andrew Bailey stated on Friday that the central bank can tolerate inflation above its 2% target for now, citing uncertainty from the Iran war and sluggish growth. However, he cautioned that "that tolerance would weaken" if higher prices began to feed into wages and broader economic indicators. Markets continue to price in tighter policy, with money-market futures pointing to 32 basis points of rate hikes this year, just over a quarter-point move.
"The UK economy isn't in great shape," said Danske Bank senior FX strategist Kirstine Kundby-Nielsen, reflecting the prevailing cautious sentiment. The coming week will be dominated by market surveys, with S&P Global releasing UK manufacturing PMI on Monday, services and composite PMI on Wednesday, construction PMI on Thursday, and the Halifax house price index on Friday. PMI readings above 50 signal expansion, while those below indicate contraction.
The market setup remains fragile. If ceasefire talks collapse, oil could surge, stoking inflation worries and increasing bets on further Bank of England rate hikes. Soft PMI data would also make it difficult for the FTSE 250 to continue its leadership. For now, UK stocks have a little breathing space, but attention is shifting from May's finish to whether June's numbers will reveal an economy capable of absorbing higher energy prices without additional central bank intervention.
