UK equities drop, pound weakens
The blue-chip index FTSE 100 dropped 1.3% and the GBP/USD declined 0.2%
UK equities and European peers dropped on Thursday while the pound weakened as uncertainty over the Middle East war persisted.
Earlier this week, Iran signalled it had no intention of directly negotiating with the U.S.
The blue-chip index FTSE 100 dropped 1.3% and the GBP/USD declined 0.2% against the dollar to 1.3342. The DAX index in Germany shed 1.6%, the CAC 40 in France slipped 1%.
The UK received the largest economic growth downgrade among G20 nations due to the Iran war, according to the Organisation of Economic Co-operation and Development on Thursday.
The Paris-based policy group cut its 2026 UK growth forecast to 0.7% from a previous projection of 1.2% in its interim economic outlook. The reduction reflects the impact of disrupted energy supplies and elevated commodity prices stemming from the US-Israel war with Iran.
Inflation in the UK is expected to accelerate to 4% this year, up from 3.4% in 2025, driven by higher energy costs. The rate represents the second-highest among “G7” countries and remains above the Bank of England’s 2% target.
The OECD expects the Bank of England to maintain its key interest rate at 3.75% before implementing a quarter-point cut in early 2027 as inflation pressures ease. Consumer price inflation is forecast to drop to 2.6% next year.
British retailer Next PLC said the US-Israeli war against Iran is likely to raise costs and weigh on demand, while it reported a rise in annual earnings. The company posted group profit before tax of £1.158 billion, up 14.5% from £1.011 billion a year earlier, while group sales increased 10.8% year-over-year to £7 billion. Earnings per share came in at 744.2 pence. Shares in Next climbed after the print.
FirstGroup PLC released a pre-close trading statement, reporting that performance at both First Bus and First Rail divisions met expectations. The transport operator updated its net debt guidance for fiscal year 2026 to £135 million to £145 million, an improvement from the £140 million to £150 million range provided in December following the Tootbus acquisition.