UK shop prices have risen as the escalating Middle East conflict disrupts supply chains and pushes up oil costs. Brent crude surged to $97.58 a barrel after Iran announced it would halt peace talks with the US until Israel ends operations in Lebanon and Gaza, according to the IRGC-affiliated Tasnim news agency. The rise from $92 at the end of last week has stoked fears of inflation and higher borrowing costs.
The conflict is also impacting the housing market. Nationwide reported that UK house prices fell 0.6% in May, the first monthly decline this year, leaving them 1.7% higher than a year earlier. Rising mortgage rates, driven by inflation fears, have dampened homebuyer demand. Housebuilder shares fell, with Persimmon down 4.2% and Barratt Redrow off 3.2%.
Oil could soon hit $100 a barrel again, warned Chris Beauchamp, chief market analyst at IG. “The floor for oil prices lies around $90 for Brent, and if these comments on the ceasefire lead to further escalation, it is not hard to imagine both oil prices breaching $100 again,” he said. Government bond yields rose as inflation fears intensified, with UK 10-year yields up 7 basis points to 4.88%.
The dollar strengthened as investors sought safe havens, pushing the pound down half a cent to $1.341 and the euro to $1.16. The London stock market fell, reflecting concerns that the ongoing crisis will fuel inflation and weaken demand for new homes.
