Market mayhem as Trump halts strikes: Oil plunges and stocks rally but UK gilt yields still highest in G7
Borrowing costs whipsawed yesterday as hopes of an end to the Iran war delivered relief to markets – but Britain remained under intense pressure from global investors.
US President Donald Trump’s claim that Iran wanted to make a deal to end the conflict sent yields on UK ten-year bonds – known as gilts – plunging to as low as 4.82 per cent from an 18-year high of 5.12 per cent.
But they later spiked sharply to more than 4.9 per cent, with traders continuing to bet that Britain’s already high inflation and reliance on gas imports make it especially vulnerable to the crisis.
Investors are also wary of whether the UK can afford a mooted bail-out of households and businesses as they face soaring energy bills.
Prime Minister Keir Starmer yesterday said a meeting of the Government’s emergency Cobra committee would examine ‘every lever that’s available’ to tackle the impact of the war on the cost of living.
Stock markets also saw wild swings, with the FTSE 100 plunging nearly 250 points before rebounding to go 120 points higher, then closing down 0.2 per cent, or 24.18 points, to 9,894.15.
Rollercoaster: Donald Trump's claim that Iran wanted to make a deal sent yields on UK ten-year bonds plunging to as low as 4.82%. But they later moved higher to more than 4.9%
Oil prices gyrated, too, with Brent crude hitting $114 a barrel in early trading before tumbling to as low as $96 and later advancing past the $100 mark once more.
Britain’s cost of borrowing on bond markets – where yields rise as prices fall – remains the highest among the G7 group of advanced economies.
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Investors fear that the huge damage being inflicted by the surge in oil and gas prices could leave the UK at risk of stagflation, the dismal combination of stagnant output and higher inflation.
Goldman Sachs has more than halved its UK growth outlook, predicting GDP would be just 0.6 per cent bigger by the end of this year compared to 2025 – down from 1.5 per cent from before the conflict.
It also predicted inflation would rise to 3.2 per cent.
Meanwhile, KPMG slashed its growth outlook to 0.7 per cent and predicted inflation will hit 3.6 per cent.
These fears have wiped out any hopes of interest rate cuts this year and have left markets predicting as many as four hikes, too.
Craig Veysey, head of fixed income at Guinness Global Investors, said: ‘Gilt markets have remained under heavy pressure as investors try to work out whether this is simply an energy shock or the start of something more stagflationary.
‘This is part of a broader global bond sell-off, but the UK move has been much more severe than in other major markets.’
At the centre of the sharp market movements yesterday were Trump’s claims that Iran wanted to make a deal.
The move was seen as a vindication of the so-called Taco (‘Trump always chickens out’) trade. Yet analysts were sceptical, especially given Iran’s denial that it was in talks with the US.
Matthew Amis, investment director at asset manager Aberdeen, said ‘to materially unwind the moves of the last few weeks, we would need to see more than words and clear action – namely, ships moving through the Strait of Hormuz’.
Susannah Streeter, at Wealth Club, said: ‘Clinging to President Trump’s words is fraught with risks, given how hopes have already risen and then been dashed over the past four weeks.’
Is Britain doing enough to protect ordinary people from the fallout of global market chaos?
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