British equities remained in negative territory on Thursday, with the FTSE 100 closing 0.55% lower, as persistent US-Iran attacks on shipping disrupted oil flows through the Strait of Hormuz, keeping Brent crude above $100 a barrel.
Iran on Wednesday claimed responsibility for targeting two US vessels and eight oil tankers in the Persian Gulf in retaliation for US attacks on five Iranian tankers the day before. Citing a senior Iranian official, Bloomberg News reported that Iran is prepared to intensify the conflict if US attacks persist.
"Although the oil market has proven resilient, the risks to supply are significant, so a sustained period of higher oil and gas prices remains a key risk to the UK economy. Such a scenario would likely mean that inflation stays higher in H1 2027, extending the squeeze on household spending power. Given that some [monetary policy committee] members have suggested a sustained period of higher energy prices would raise the chances that second-round effects would develop, this scenario could also result in monetary policy being tightened pre-emptively," Oxford Economics said.
On the monetary-policy front, the European Central Bank raised interest rates by 25 basis points, in line with market expectations. The ECB also lifted its baseline inflation forecasts for 2027 and 2028 and cautioned that price growth is likely to remain above its 2% target for an extended period.
Meanwhile, the UK's residential property market showed tentative signs of improvement, with the Royal Institution of Chartered Surveyors' house price balance rising to -28% in August from a revised -29% in July, although the reading still indicated that more respondents reported price declines than increases.
"The August RICS survey tells a story of a market that is healing, but slowly. Activity indicators remain negative across the board, yet for the fifth consecutive month the new buyer enquiries reading has become less negative, arriving at -19% in August from -28% in July. Agreed sales followed suit, improving to -17% from -30%. These are still firmly in contraction territory, but the direction of travel matters, and for now the direction is up," RBC Capital Markets said.
In corporate news, food and retail group Associated British Foods (ABF.L) dropped 7.97% to become the worst FTSE 100 performer after reporting weaker-than-expected sales for its Primark unit. "Primark LFLs at -3% were below a thin consensus of -2.2%, impacted by hot weather delaying autumn/winter purchasing in the UK and continued weakness in Continental Europe/the US. For the group, ABF expects full year operating profit in line with previous expectations, while it expects adjusted EPS to be ahead of previous expectations," Bernstein said.
Private equity investor Intermediate Capital Group (ICG.L), or ICG, declined 0.52% after Deutsche Bank Research reiterated its buy rating with a price target of 28 pounds sterling. "ICG has reported that they have achieved final close of the flagship Europe IX fund, hitting the hard cap of EUR12bn, despite demand outweighing this. This is reportedly a 50% increase from the predecessor fund (itself a record raise and large step up from prior vintage), and the company believe that this is the largest structured capital fund raised by any company ever," analysts said.